LIABILITY  AND 
COMPENSATION  INSURANCE 


A  Selection  of 

APPLETONS'    BUSINESS     BOOKS 

Fundamentals  of  Salesmanship,  by  Morris  A.  Brisco 

Retail  Selling  and  Store  Management,  by  Paul  H.  Nystrom 

Advertising  and  Selling,  by  H.  L.  Hollingworth 

The  Business  of  Advertising,  by  Earnest  Elmo  Calkins 

Modern  Advertising,  by  Earnest  Elmo  Calkins  and  Ralph  Holden 

Money  and  Banking,  by  John  Thorn  Holdsworth 

The  Modern  Bank,  by  Amos  K.  Fiske 

The  Work  of  Wall  Street,  by  Sereno  S.  Pratt 

Funds  and  Their  Uses,  by  Frederick  A.  Cleveland 

Credit  and  Its  Uses,  by  William  A.  Prendergast 

Rural  Credits,  by  Myron  T.  Herrick 

Interest  Tables  and  Formulae,  by  John  G.  Holden 

Financial  Crises,  by  Theodore  E.  Burton 

Corporation  Finance,  by  Edward  S.  Mead 

Trust  Finance,  by  Edward  S.  Mead 

The  Principles  of  Industrial  Management,  by  J.  C.  Duncan 

Modern  Industrialism,  by  Frank  L.  McVey 

Textiles,  by  Paul  H.  Nystrom 

Cost-Keeping  for  Manufacturing  Plants,  by  Sterling  H.  Bunnel 

Modern  Accounting,  by  Henry  Rand  Hatfield 

Accounting  Practice,  by  Clarence  M.  Day 

Elements  of  Accounting,  by  Joseph  J.  Klein 

A  First  Year  in  Bookkeeping  and  Accounting,  by  George  A. 

Macfarland  and  Irving  D.  Rossheim 
American  Corporations,  by  John  J.  Sullivan 
Corporations  and  the  State,  by  Theodore  E.  Burton 
American  Business  Law,  by  John  J.  Sullivan 
The  Essentials  of  Business  Law,  by  Francis  M.  Burdick 
Property  Insurance,  by  Solomon  S.  Huebner 
Life  Insurance,  by  Solomon  S.  Huebner 
The  Life  Insurance  Company,  by  William  Alexander 
Newspaper  Reporting  and  Correspondence,  by  Grant  Milnor  Hyde 
Newspaper  Ed.ting,  by  Grant  Milnor  Hyde 
Practical  Journalism,  by  Edwin  L.  Shuman 
Principles  of  Railroad  Transportation,  by  Emory  R.  Johnson  and 

Thurman  W.  Van  Metre 

Elements  of  Transportation,  by  Emory  R.  Johnson 
Ocean  and  Inland  Water  Transportation,  by  Emory  R.  Johnson 
Railroad  Traffic  and  Rates,  by  Emory  R.  Johnson  and  Grover 

G.  Huebner 

Railroad  Finance,  by  Frederick  A.  Cleveland  and  Fred.  W.  Powell 
Railroad  Administration,  by  Ray  Morris 
Railroad  Accounting,  by  William   E.  Hooper 
Agricultural  Commerce,  by  G.  G.  Huebner 
Irrigation  Management,  by  Frederick  Haynes  Newell 
Irrigation  in  the  United  States,  by  R.  P.  Teele 

New  Volumes  Will  be  Added  to  This  List  at  Frequent  Intervals 
D.  APPLETON  AND  COMPANY,  PUBLISHERS,  NEW  YORK 


177  B 


LIABILITY  AND 
COMPENSATION   INSURANCE 

INDUSTRIAL  ACCIDENTS  AND  THEIR  PREVENTION, 
EMPLOYERS'  LIABILITY,  WORKMEN'S  COMPEN- 
SATION, INSURANCE  OF  EMPLOYERS' 
LIABILITY  AND  WORKMEN'S 
COMPENSATION 


BY 

RALPH  H.  BLANCHARD 

INSTRUCTOR  IN  INSURANCE,  WHARTON  SCHOOL  OF  FINANCE  AND  COMMERCE 
UNIVERSITY  OF  PENNSYLVANIA 


D.  APPLETON  AND  COMPANY 

NEW  YORK  LONDON 

1917 


COPYRIGHT,  1917,  BY 
D.  APPLETON  AND  COMPANY 


Printed  in  the  United  States  of  America 


PREFACE 

The  inadequacy  of  the  employers'  liability  principle 
gave  rise  to  a  demand  for  more  liberal  legislation  and 
the  period  beginning  with  1911  has  been  marked  by 
the  enactment  of  workmen's  compensation  laws  granting 
benefits  to  workmen  for  practically  all  injuries  occurring 
during  working  hours.  Such  laws  are  now  in  force  in 
thirty-two  states  and  two  territories,  and  an  act  was 
passed  in  1916  covering  all  civil  employees  in  the  service 
of  the  Federal  Government.  These  developments  have 
broadened  and  intensified  the  need  for  insurance  to  re- 
lieve employers  of  the  uncertain  and  heavy  burden  of 
payments  to  employees  and  to  secure  workmen  in  their 
rights  to  receive  compensation.  To  furnish  insurance 
commensurate  with  these  needs  both  private  and  gov- 
ernmental agencies  have  been  created  and  extended. 

Workmen's  compensation  and  its  insurance  involve 
numberless  intricate  problems,  legislative,  administrative, 
and  technical.  The  revolutionary  nature  of  the  principle 
and  its  rapid  adoption  have  made  it  difficult  to  arrive  at 
adequate  solutions.  Much  remains  to  be  done,  but  the 
accomplishments  of  legislators,  public  and  private  offi- 
cials, and  insurance  scientists  have  been  remarkable,  and 
what  might  have  been  a  growth  of  many  years  has  been 
compressed  into  six.  The  work  of  these  six  years  has 
been  fundamental,  precedent  has  not  been  allowed  to  rule, 
and  the  future  will  probably  see  the  development  of  pres- 
ent principles  rather  than  the  discovery  of  new  ones. 

This  volume  aims  to  present  the  results  of  the  work- 
men's compensation  movement  in  the  United  States  in 
terms  of  legislation  and  insurance  practice,  and  to  ex- 


502Y6* 


vi  PREFACE 

plain  the  industrial  accident  problem  and  the  development 
of  liability  and  compensation  principles  as  a  background 
for  the  comprehension  of  present  problems.  In  method 
of  presentation  it  follows  the  outline  of  a  course  of  in- 
struction given  by  the  writer  in  the  Wharton  School  of 
the  University  of  Pennsylvania;  taking  up  successively 
industrial  accidents  and  their  prevention,  the  law  of  neg- 
ligence, the  development  of  workmen's  compensation,  ex- 
isting compensation  statutes,  and  the  principles  and  prac- 
tices of  insurance  as  applied  to  employers'  liability  and 
workmen's  compensation.  Where  authorities  disagree, 
both  sides  are  presented — the  book  is  intended  to  be  a 
text  rather  than  a  polemic — and  final  conclusions  on  con- 
troversial subjects  have  been  avoided.  Wherever  neces- 
sary in  the  interests  of  accuracy,  chapters  have  been  read 
and  criticized  by  specialists.  Suggestive  references  are 
added  wherever  they  are  available,  that  the  student  who 
desires  to  do  so  may  be  able  to  go  to  more  exhaustive 
and  particularized  sources. 

It  is  hoped  that  the  volume  may  prove  useful  as  a 
survey  of  the  general  field  for  professional  and  lay  stu- 
dents as  well  as  for  those  whose  work  lies  in  specialized 
branches  of  the  insurance  business. 

Space  does  not  permit  detailed  acknowledgment  of  the 
assistance  received  from  public  and  private  officials,  with- 
out whose  cooperation  the  preparation  of  this  text  would 
have  been  impossible.  The  author  is  greatly  indebted  to 
these,  and  especially  to  Dr.  S.  S.  Huebner,  at  whose  sug- 
gestion the  work  was  undertaken,  and  to  Dr.  Bruce  D. 
Mudgett,  both  of  whom  have  read  the  manuscript  and 
aided  with  constructive  suggestions. 

RALPH  H.  BLANCHARD. 
University  of  Pennsylvania. 


CONTENTS 


PART  I 
INDUSTRIAL  ACCIDENTS   AND   THEIR   PREVENTION 


CHAPTER 

I.  INDUSTRIAL  ACCIDENTS  .        .        ......        3 

The  extent  of  industrial  accidents,  3.  The  results  of 
industrial  accidents,  5.  Responsibility,  9.  Accident 
statistics,  n.  The  problem  of  industrial  accidents,  12. 

II.  THE  PREVENTION  OF  INDUSTRIAL  ACCIDENTS     ...       13 

Agencies  of  accident  prevention,  14.  Methods  of  acci- 
dent prevention,  17.  Occupational  diseases,  26. 

III.  THE  RESULTS  OF  ACCIDENT  PREVENTION  ....      27 

Reduction  in  accident  frequency,  27.  Reduction  in  loss 
of  time  and  wages,  31.  Net  saving,  33.  Conclusion,  36. 


PART  II 

EMPLOYERS'  LIABILITY  AND  WORKMEN'S 
COMPENSATION 

IV.     THE  LAW  OF  NEGLIGENCE  AS  APPLIED  TO  THE  RELATION 

OF  MASTER  AND  SERVANT 41 

The  law  of  negligence,  41.  Employers'  liability,  42. 
Proof  of  liability,  45.  Assumption  of  risk,  45.  Com- 
mon employment,  46.  Contributory  negligence,  48.* 
Burden  of  proof,  48.  Death  limitation,  49.  Contract- 
ing out,  49.  Modifications  of  the  common  law,  49. 
Modifications  of  the  fellow-servant  rule,  50.  Historical 
development,  52. 


viii  CONTENTS 

CHAPTEB  PAGE 

V.  CRITICISM  OF  THE  SYSTEM  OF  EMPLOYERS'  LIABILITY      .      57 

The  employee's  criticism,  59.  The  employer's  criticism, 
63.  Society's  criticism,  64.  Summary,  65.  Other  at- 
tempts to  solve  the  accident  problem,  65.  Conclusion, 
66. 

VI.  THE  THEORY  OF  WORKMEN'S  COMPENSATION  ...      68 

Changes  in  industrial  relations,  69.  Change  from 
handicraft  to  machinery,  72.  The  growth  of  cities,  73. 
New  social  ideas,  73.  Workmen's  compensation,  75. 
Definition  of  workmen's  compensation,  76.  Basis  of 
workmen's  compensation,  76.  Conclusion,  78. 

VII.  HISTORICAL    DEVELOPMENT    OF    WORKMEN'S    COMPEN- 

SATION IN  FOREIGN  COUNTRIES 79 

Germany,  82.  Early  laws,  82.  Liability  act  of  1871,  83. 
Workmen's  compensation,  84.  Provisions  of  the  pres- 
ent law,  87.  Great  Britain,  88.  Employers'  liability, 
88.  Workmen's  compensation,  the  law  of  1897,  90. 
Later  acts,  92. 

VIII.  HISTORICAL  DEVELOPMENT  OF  WORKMEN'S   COMPEN- 

SATION IN  THE  UNITED  STATES  AND  TERRITORIES    .      94 

Compensation  schemes  of  private  corporations,  95. 
Workmen's  collective  insurance,  96.  The  Maryland  act 
of  1902,  96.  The  Massachusetts  act  of  1908,  98.  The 
federal  act  of  1908,  99.  Later  acts,  99. 

IX.  WORKMEN'S     COMPENSATION     LEGISLATION     IN     THE 

UNITED  STATES  AND  TERRITORIES       ....     103 

Election  of  compensation,  104.  Employments  covered, 
108.  Injuries  covered,  no.  The  beneficiaries  of  com- 
pensation, 112.  Waiting  period,  114. 

X.  WORKMEN'S      COMPENSATION      LEGISLATION      IN      THE 

UNITED  STATES  AND  TERRITORIES    (Continued)       .     116 

The  schedule  of  compensation,  116.  Classification  of 
industrial  accidents,  116.  Total  disability  benefits,  118. 


CONTENTS  ix 

CHAPTER  PAGE 

Partial  disability  benefits,  120.  Specific  permanent  in- 
jury schedules,  121.  Death  benefits,  123.  Medical  and 
surgical  aid,  126.  Commutation  of  payments,  126, 
Criticism,  127.  The  computation  of  compensation,  129. 

XL    WORKMEN'S     COMPENSATION     LEGISLATION     IN     THE 

UNITED  STATES  AND  TERRITORIES   (Continued)       .     132 

Administration,  132.  Administrative  commissions,  132. 
The  duties  of  the  commission,  134.  Advantages  of  the 
commission  plan,  136.  Disadvantages  of  the  commis- 
sion plan,  137.  Miscellaneous  provisions,  137.  Burden 
of  cost,  137.  Compensation  a  preferred  claim,  138.  As- 
signments and  exemptions,  138.  Accident  prevention, 
139.  Other  provisions,  139. 

XII.  THE  CONSTITUTIONALITY  OF  WORKM-EN'S  COMPENSA- 

TION LAWS 142 

Compulsory  laws,  143.  The  Ives  case,  143.  The  Clau- 
sen case,  147.  Supreme  court  decisions,  151.  Elective 
laws,  155. 

PART   III 

EMPLOYERS'  LIABILITY  AND  WORKMEN'S  COMPEN- 
SATION INSURANCE 

XIII.  THE  THEORY  OF  INSURANCE  AS  APPLIED  TO  EMPLOY- 

ERS' LIABILITY  AND  WORKMEN'S  COMPENSATION     .     161 

The  theory  of  probability,  162.  Accuracy  of  the  theory, 
163.  Application  of  the  theory  of  probability  to  the 
insurance  of  employers'  liability  and  workmen's  com- 
pensation, 168.  Practical  qualifications,  171. 

XIV.  METHODS  OF  INSURANCE 173 

Self-insurance,  173.  Types  of  insurance  organizations, 
174.  Insurance  requirements,  175.  Methods  of  insur- 
ance permitted,  177.  The  stock  company,  179.  Char- 
acteristics, 179.  History  and  present  position  of  stock 
companies,  180.  Arguments  for  insurance  in  stock 


x  CONTENTS 

CHAPTBB  PAGE 

companies,  181.  Arguments  against  insurance  in  stock 
companies,  183.  The  mutual,  184.  Characteristics,  184. 
History  and  present  position,  185.  Arguments  for 
mutual  insurance,  186.  Arguments  against  mutual  in- 
surance, 187. 

XV.  METHODS  OF  INSURANCE  (Continued)    .        .        .        .188 

The  state  funds,  188.  Characteristics,  188.  History 
and  extent  of  business,  190.  Arguments  in  favor  of 
state  funds,  191.  Arguments  against  state  funds,  192. 
Conclusion,  193.  Conclusions  from  experience,  195. 
The  future,  197. 

XVI.  THE  POLICY  CONTRACT •   199 

General  principles,  199.  A  contract  of  indemnity,  199. 
A  personal  contract,  200.  Rules  of  construction,  201. 
Employer's  liability  contract,  201.  The  obligation  as- 
sumed, 201.  Premium  computation,  202.  Inspection, 

203.  Cancellation,    203.      Notices,    203.      Warranties, 

204.  Miscellaneous,    204.      Workmen's    compensation 
contract,  205.     The  obligation  assumed,  205.     Premium 
adjustment,  206.     Notice,  206.     Cancellation,  206.    Ap- 
proval of  the  contract,  206. 

XVII.  MANUAL  PREMIUM   RATES 208 

Employers'  liability  rates,  208.  Workmen's  compensa- 
tion rates,  209.  History,  209.  The  importance  of  the 
rate,  210.  The  task  of  rate-making,  210.  Kinds  of 
rates,  211.  Manual  rates,  211.  Definition,  211.  Use 
of  manual,  211.  The  component  parts  of  a  manual 
rate,  212.  Factors  to  be  considered  in  computing  prob- 
able loss  cost,  215.  Factors  causing  variation  in  loss 
cost  between  states,  221.  The  expense  and  profit  fac- 
tors, 222. 

XVIII.  MANUAL  PREMIUM  RATES  (Continued)     .        .        .    223 

Calculation  of  manual  rates,  223.  The  problem,  223. 
The  machinery  of  rate-making,  224.  Method  of  cal- 


CONTENTS  xi 

CHAPTER  PAGE 

culating  manual  rates,  226.  Basic  pure  premiums,  227. 
Law  differential,  227.  Accident  frequency,  230.  In- 
creasing cost  of  the  act,  232.  Industrial  diseases,  232. 
Catastrophes,  232.  Expense,  232.  Typical  rate  calcula- 
tion, 235.  Criticism  of  present  methods  of  calculation 
236.  The  future,  237. 

XIX.     MERIT    RATING 240 

Bases  for  merit  rating,  241.  Schedule  rating,  241. 
Definition,  241.  The  schedule,  242.  Types  of  hazard, 
243.  Machine-employee  ratio,  246.  Safety  organiza- 
tion, inspection  service,  and  education,  248.  Use  of  eye 
protectors,  etc. ;  maintenance  and  inspection,  249.  For- 
mula rating,  249.  Application  of  the  schedule,  249. 
Conclusion,  252. 


XX.     MERIT  RATING  (Continued} 253 

Experience  rating,  253.  Definition,  253.  Purpose,  253. 
Requirements  for  a  scientific  plan  of  experience  rating, 
254.  The  New  York  plan,  255.  Calculation  of  loss 
ratio,  255.  Neutral  zone,  257.  Maximum  debits  and 
credits,  257.  Computation  of  actual  debits  and  credits, 
258.  Schedule  rated  risks,  259.  Application  of  the 
plan,  259.  Other  plans,  259.  Proposed  plans,  260. 
Summary  of  arguments  pro  and  con,  261.  Conclusion, 
262. 


XXL     RESERVES 265 

Unearned  premium  reserve,  265.  Method  of  calcula- 
tion, 266.  Loss  reserves,  267.  Definition  and  purpose, 
267.  Desiderata,  268.  Difficulties,  269.  Methods  of 
calculation,  270.  Present  law,  272.  Defects  of  the 
present  law,  275.  Proposed  law,  275.  Other  methods 
used,  278. 

XXII.     INSURANCE  OF  THE  CATASTROPHE  HAZARD  .        .        .    280 

Limits,  282.  Accumulation  of  catastrophe  reserves, 
282.  Reinsurance,  283.  Workmen's  compensation,  284. 


xii  CONTENTS 

APPENDICES 


PAGE 


A.  THE  NEW  YORK  WORKMEN'S  COMPENSATION  LAW       .    289 

B.  FORM   OF  WORKMEN'S   COMPENSATION  AND  EMPLOYERS' 

LIABILITY  POLICY  CONTRACT  COVERING  A  TYPICAL 
MANUFACTURING   RISK       ......    36! 


INDEX 


PART  I 

INDUSTRIAL  ACCIDENTS  AND  THEIR 
PREVENTION 


CHAPTER  I 
INDUSTRIAL  ACCIDENTS 

Industrial  accidents,  those  accidents  occurring  to 
an  employee  during  his  working  hours,  create  the 
problems  of  which  the  systems  of  Employers'  Liability 
and  Workmen's  Compensation  are  attempted  solu- 
tions. 

The  Extent  of  Industrial  Accidents. — It  has  been 
estimated  by  Dr.  Frederick  L.  Hoffman  that  there  oc- 
curred in  the  United  States,  during  the  year  1913, 
700,000  industrial  accidents,  involving  a  disability 
period  of  over  four  weeks  and  25,000  which  termi- 
nated fatally.1  In  the  metal  and  miscellaneous  min- 
eral mines  of  the  United  States  the  statistics  of  acci- 
dents for  the  year  1913  are  as  follows :  2 

Per  1000 
Number          employed 

Fatally  injured 683  3.54 

Seriously  injured  (loss  of  20  days  or 

more)  5,890  30.50 

Slightly  injured  (loss  of  over  one 

and  less  than  20  days) 27,081  140.25 

The  mining  industry  is  of  an  extremely  hazardous  na- 
ture and  the  accident  frequency  among  its  employees 

1  Industrial  Accident  Statistics,  p.  6. 

2  U.  S.  Bureau  of  Mines,  Technical  Paper  94,  p.  27. 

3 


4  COMPENSATION  INSURANCE 

is  higher  than  in  any  other.  In  two  other  dangerous 
industries  for  which  we  have  statistics  for  the 
entire  country  the  following  tables  have  been  com- 
piled : 


ACCIDENTS  TO  EMPLOYEES  OF  STEAM  RAILWAYS  YEAR 
ENDING  JUNE  30,  I9I53 

Per  1000 
Number          employed 

Killed 2,152  1.49 

Injured   138,092  88.64 


ACCIDENTS  IN  155  IRON  AND  STEEL  PLANTS  YEAR  END- 
ING JUNE  30,  1910* 

Per  1000  300- 
Number          day  workers 

Fatal 274  1.86 

Permanent  injury —        400  2.72 

Temporary    disability     (one    day 

and  over) 35>364  240.6 

Total    36,038  245.2 

Unfortunately  we  have  no  statistics  to  show  the 
number  of  industrial  accidents  throughout  the  United 
States  in  other  industries  but  certain  of  the  indi- 
vidual states  have  gathered  valuable  data  from  which 
the  following  table  is  cited  as  especially  signif- 
icant : 

3  Interstate  Commerce  Commission,  Accident  Bulletin  No.  56, 
P-  23. 

4  Report  on  Conditions  of  Employment  in  the  Iron  and  Steel 
Industry  in  the  United  States,  Vol.  IV,  p.  43. 


INDUSTRIAL  ACCIDENTS  5 

INDUSTRIAL   ACCIDENTS    IN    MASSACHUSETTS    FOR    THE 
YEAR  ENDING  JUNE  30,  IQI45 

Fatal  accidents 509 

Non-fatal  accidents 96,382 

Total  96,891 

Rates  per  1000  employees : 

Automobile  factories 287. 

Box  makers  (wood) 137. 

Car  and  railroad  shops 100. 

Cotton  mills 67. 

Boots  and  shoes 54. 

Clothing   makers 22. 

Average  for  25  selected  industries 102.85 

Further  citations  would  only  serve  to  emphasize  the 
fact  which  the  above  figures  clearly  indicate,  that  in- 
dustrial accidents  play  no  inconsiderable  part  in  the 
conduct  of  modern  business,  and  are  sufficiently  nu- 
merous to  warrant  careful  study  with  a  view  to  elimi- 
nating them  or  mitigating  their  consequences.  Such  a 
study  should  proceed  first  in  the  direction  of  a  de- 
termination of  the  economic  loss  occasioned  by  them. 
Physical  suffering  and  anxiety  must  also  be  con- 
sidered but  these  consequences  are  not  capable  of 
measurement  and  therefore  cannot  be  made  the  sub- 
ject of  a  scientific  study.  Having  determined  the  eco- 
nomic loss  we  will  be  in  a  position  to  judge  the  mag- 
nitude of  the  problem  and  to  adopt  measures  for  its 
solution  which  are  commensurate  with  its  importance. 

The  Results  of  Industrial  Accidents. — The  occur- 

6  Second  Annual  Report  of  the  Industrial  Accident  Board  of 
Massachusetts,  Boston,  1915,  pp.  29  and  32. 
2 


6  COMPENSATION  INSURANCE 

rence  of  these  injuries  is  directly  detrimental  to  the 
employee,  the  employer,  and  to  society. 

The  most  obvious  loss  is  borne  by  the  working  class, 
the  employee  and  his  dependents,  and  consists  of  sev- 
eral items;  loss  of  time,  loss  of  wages,  and  medical 
and  surgical  expenses.  In  130  steel  plants  during  the 
two  years  ending  June  30,  1910,  the  average  time  lost 
per  injury  was  12.9  days,  and  the  average  time  lost 
per  300  day  worker  for  the  same  period  in  plants  and 
departments  where  data  were  available  was  estimated 
at  3.5  days.6  Assuming  an  average  wage  of  $2.00  per 
day  the  wage  loss  per  injury  was  $25.80  and  per 
worker,  $7.00,  in  addition  to  medical  and  surgical  ex- 
penses. These  figures  are  based  on  a  total  of  11,702 
accidents  and  150,714  days  lost;  involving,  at  the  $2.00 
wage,  a  total  loss  of  $301,428  in  wages,  to  which 
should  be  added  payments  to  physicians  and  hospitals. 
In  Massachusetts  the  duration  of  total  disability  has 
been  analyzed  for  the  96,382  non-fatal  accidents  men- 
tioned above  with  the  following  results : 

Duration  of  Total  Disability               No.  of  Cases  %  of  Total 

i  week  and  under 24,301  25.21 

1  to  2  weeks 9>755  10.12 

2  to  4  weeks 9,221  9.57 

4  to  8  weeks 7,065  7.33 

8  to  13  weeks 2,549  2.64 

13  weeks  to  6  months i,49i  1-55 

6  months  to  51  weeks 438  .45, 

52  weeks  and  over 293  .30 

Disability  of  less  than  one  day.  ...  41,269  42.82 

6  Report  on  Iron  and  Steel  Industry.    Vol.  IV.  pp.  53-56. 


INDUSTRIAL  ACCIDENTS  7 

The  wages  of  the  workman  who  suffered  the  above 
injuries  have  been  analyzed  as  follows: 


Wage   Groups 

$6  and  under  
5  01  —  $7  oo  .  .  . 

No.  of  %of 
Cases  Total 

5J7i      5-37 
3,268      3.39 

Wage  Groups 

$16  oi  —  $17  oo.. 
17  oi  —  18  oo.  . 

No.  of  %of 
Cases  Total 

4,085      4.24 
5,029      5.22 

7  01  —  8  oo  . 

q,468      q.67 

jg  oi  —  •  19  oo.  . 

1,612      1.67 

8  01  —  9  oo.  . 

7  041        8  24 

ip  oi  —  20  oo.. 

3,194       3.31 

9  01  —  10  oo 

7,^60      7.8q 

20  oi  —  21  oo.  . 

1,807     1.87 

IO  OI  —  II    OO  

8,471      8.79 

21    OI  —  22   OO.  . 

1,022          1.  06 

II   OI  —  12  OO 

12  668    13  14 

22  OI  —  23  OO.  . 

496            .51 

12   01  —  13   OO  

13  01  —  14  oo  
14  oi  —  15  oo 

4,670      4.85 
8,075      8.38 
7  782      8  07 

23  oi  —  24  oo.  . 
24  oi  —  25  oo.  . 
Over  $25 

842            .87 
1,272         T.32 
2,148        2.23 

-3  7Qo          3  O"? 

O5/y^        o-yo 

Total    , 

.06.182 

All  of  the  above  figures  apply  only  to  non-fatal  ac- 
cidents which,  while  they  are  much  more  numerous, 
cause,  in  the  average  case,  much  less  economic  loss 
than  do  fatal  accidents,  for  the  majority  of  workmen 
have  one  or  more  persons  dependent  in  whole  or  in 
part  upon  their  wages  for  support.  Of  the  509  fatal 
accidents  in  Massachusetts  422  involved  dependency, 
942  persons  were  totally  dependent  in  331  cases,  and 
144  were  partially  dependent  in  91  cases;  in  87  cases 
there  were  no  dependents. 

The  relative  importance  of  the  losses  from  various 
types  of  disability  may  be  indicated  in  a  very  general 
way  by  a  table  drawn  up  by  the  actuaries  of  the  Indus- 
trial Insurance  Department  of  the  state  of  Washing- 
ton. Assuming  that  the  average  work  year  consisted 
of  300  days  and  that  the  average  life  expectancy  was 
twenty-five  years,  this  table  was  compiled  for  the  year 
ending  June  30,  1913. 7 

7  Second  Annual  Report  of  the  Industrial  Insurance  Depart- 
ment, Olympia,  Wash.,  1914,  p.  102. 


8  COMPENSATION  INSURANCE 

Work  years  lost 

Fatal  Accidents , 8,225. 

Temporary  Total   Disability i,  135.8 

Permanent  Partial  Disability 4,131.2 

Permanent  Total  Disability 325. 


13,817. 

Volumes  might  be  rilled  with  statistics  to  show  the 
magnitude  of  the  problem  from  the  point  of  view  of 
the  workingman.  He  is  hard-pressed  to  meet  the  nec- 
essary expenses -of  existence  and  is  entirely  incapable 
of  providing  adequately  for  himself  and  his  depend- 
ents in  case  an  accident  removes  his  source  of  income. 
Unquestionably,  were  his  the  only  loss  from  industrial 
accidents,  there  would  be  an  overwhelming  need  for 
investigation  and  the  application  of  remedial  meas- 
ures. 

But  the  employer  is  also  affected.  It  is  to  his  inter- 
est to  have  his  business  proceed  efficiently  and  without 
interruption;  if  a  workman  is  injured  his  place  must 
be  filled  by  finding  a  new  man  who  will  often  require 
considerable  time  to  become  accustomed  to  his  work. 
Damage  suits  are  a  frequent  result  of  accidents  and 
these  cause  friction  between  employer  and  employed 
and  involve  large  expense  in  the  defense  of  claims  on 
the  part  of  the  former.  If  there  were  no  industrial 
accidents  production  would  proceed  on  a  more  efficient 
basis  and  the  attention  given  to  the  consequences  could 
be  expended  on  other  problems. 

Thus  far  the  effect  of  industrial  accidents  on  those 
most  vitally  and  directly  interested  has  been  examined, 
but  if  social  action  is  to  be  demanded  people  in  gen- 


INDUSTRIAL  ACCIDENTS  9 

eral  must  be  informed  of  their  interest  in  the  problem 
before  us.  Society  loses,  first  from  the  direct  decrease 
in  productivity,  due  both  to  the  cessation  of  produc- 
tive effort  on  the  part  of  the  injured  man  and  to  the 
lowering  of  the  general  efficiency  of  industry.  In  ad- 
dition, the  injured  man  and  his  dependents  must  be 
cared  for,  with  a  consequent  lowering  of  standards 
which  reacts  further  to  decrease  general  productivity. 
If  the  workman  sues  his  employer  for  damages  the  ex- 
pensive machinery  of  the  law  is  set  in  motion  and  an- 
other heavy  item  of  loss  is  added,  for  cases  of  this 
sort  occupy  a  large  share  of  the  court's  time  where 
workmen's  compensation  laws  are  not  yet  in  force. 

Responsibility. — Having  investigated  the  nature  and 
extent  of  industrial  accidents  the  next  step  logically 
is  to  determine  where  the  responsibility  for  their  oc- 
currence rests.  With  a  knowledge  of  this,  we  can 
more  readily  attack  the  causes,  and  more  justly  assess 
the  cost  of  caring  for  the  injured.  Many  accidents 
can  be  traced  to  a  lack  of  care  or  to  actual  wrongdo- 
ing on  the  part  of  some  person,  employer  or  employee, 
but  by  far  the  greatest  share  of  casualties  is  due  to 
the  hazard  of  industry.  By  the  hazard  of  industry 
(or  "trade  risk")  is  meant  that  hazard  which  accounts 
for  accidents  not  due  to  the  personal  fault  of  any  in- 
dividual. They  are  a  necessary  result  of  the  existing 
methods  of  conducting  business,  and  responsibility  for 
their  occurrence  should  be  assigned  to  the  industry. 
That  this  factor  is  of  very  real  importance  in  deter- 
mining accident  rates  is  shown  by  an  examination  of 
comparative  tables  showing  the  rates  for  different  in- 
dustries over  a  series  of  years.  It  is  found  that  the 


10  COMPENSATION  INSURANCE 

variation  as  between  industries  is  approximately  con- 
stant; for  example,  mining  and  steel  work  will  show 
a  high  accident  frequency,  while  the  textile  industry 
and  boot  and  shoe  manufacturing  will  always  have 
a  much  lower  rate. 

Various  attempts  have  been  made  to  analyze  reports 
of  accidents  in  order  to  determine  the  personal  and  in- 
dustrial factors.  The  results  should  be  accepted  as 
only  approximately  correct  since  so  many  elements 
enter  into  each  case  that  it  is  impossible  to  make  rigid 
classifications.  A  careful  statistical  investigation  in 
a  large  iron  and  steel  plant  covering  a  period  of  six 
years  discloses  the  following  figures :  8 

Accidents  due  to  % 

Hazard  of  Industry 60 

Negligence  of  worker 7 

Negligence  of  fellow  worker 6 

Negligence  of  employer 4 

Not  disclosed  by  the  record , . . . .  23 


100 


In  different  departments  of  the  plant  the  percentage 
of  accidents  due  to  the  hazard  of  industry  varied  from 
52  to  69  per  cent. 

Statistics  compiled  for  three  years  in  the  State  of 
Washington  are  given  below  :  9 

8  Report  on  Iron  and  Steel  Industry.    Vol.  IV.,  pp.  174-5. 

9  Second  Annual  Report  of  the  Industrial  Insurance  Depart- 
ment,   p.  97. 

Fourth  Annual  Report   of  the  Industrial  Insurance  Depart- 
ment,    p.  94. 


INDUSTRIAL  ACCIDENTS  11 

Accidents  due  to  1913  1914  1915 

Risk  of  Trade 69.0%  81.7%  89.0% 

Workmen's    fault 7.8  7.2  5.3 

Fellow  servant's  fault.  . .     2.4  3.2  1.5 

Employer's  fault 7  .2  .1 

Foreman's    fault I  .1  .05 

Third  person's  fault 2  .2  .15 

Facts  not  ascertainable .  .    19.8  7.4  3.9 

100%        100%        100% 

Everywhere  the  testimony  is  the  same;  the  hazard 
of  industry  is  responsible  for  a  large  percentage  of  in- 
dustrial accidents  and,  with  the  improvement  of  safety 
devices  and  greater  care  on  the  part  of  both  the  work- 
men and  his  employer,  we  may  expect  to  see  an  in- 
crease in  this  percentage. 

It  is  occasionally  argued  that  the  extra  hazard  in- 
volved in  a  given  trade  is  offset  by  larger  wages, 
but  no  definite  relation  between  hazard  and  wages 
has  ever  been  shown  to  exist.  High  wages  are 
usually  due  to  the  limited  supply  of  skilled  workmen 
and  numerous  examples  of  a  low  wage  scale  in 
extremely  dangerous  industries  are  familiar  to  every- 
one. 

Accident  Statistics. — The  study  of  industrial  acci- 
dents in  the  United  States  has  been  greatly  hampered 
by  a  lack  of  reliable  and  adequate  data.  Besides,  the 
data  of  individual  states  have  not  been  comparable  be- 
cause of  variation  in  thoroughness  and  methods  of 
classification.  The  adoption  of  a  uniform  and  com- 
plete accident-reporting  schedule  is  strongly  to  be  ad- 
vised since  it  is  only  by  such  means  that  we  can  se- 


12  COMPENSATION  INSURANCE 

cure  the  facts  necessary  for  a  practical  consideration 
of  the  problem. 

The  Problem  of  Industrial  Accidents. — With  the 
above  facts  before  us  we  are  in  a  position  to  define 
clearly  the  problem  involved  in  industrial  accidents. 
We  must  find  methods  of  eliminating  them  or  of  mak- 
ing their  consequences  less  burdensome,  always  re- 
membering that  any  social  cost  is  justified  which  re- 
sults in  a  net  social  saving.  A  consideration  of  these 
methods  will  occupy  the  following  chapters. 

References  at  end  of  Chapter  III. 


CHAPTER  II 
THE  PREVENTION  OF  INDUSTRIAL  ACCIDENTS 

The  most  logical  method  of  eliminating  the  suffer- 
ing and  economic  loss  due  to  industrial  accidents  is  to 
prevent  their  occurrence;  with  the  removal  of  the 
cause  the  effect  will  disappear.  But  the  complete  elim- 
ination of  industrial  accidents  seems  to  be  impossible 
if  industry  is  to  continue  with  human  beings  as  a  fac- 
tor in  production.  Accidents  must  be  divided  into 
two  classes,  the  preventable  and  the  unpreventable, 
and  every  reasonable  effort  should  be  made  to  antici- 
pate and  eliminate  those  in  the  first  class.  The  burden 
of  those  which  remain  should  be  lightened  in  so  far 
as  possible  and  should  be  justly  distributed  among  the 
responsible  parties. 

The  achievement  of  industrial  safety  through  pre- 
vention of  accidents,  while  not  a  new  idea,  has  been 
the  subject  of  active  endeavor  only  during  the  last 
decade;  in  fact,  with  the  greater  part  of  our  indus- 
trial population,  safety  work  is  a  development  of  the 
last  two  or  three  years.  In  the  past,  lack  of  accurate 
knowledge,  currency  of  individualistic  ideals,  and  gen- 
erally wasteful  methods  of  production  have  precluded 
attention  to  the  problem.  Industrial  accidents  have 
been  regarded  as  an  unfortunate  but  not  particularly 
important  incident  of  modern  production.  Now,  with 

13 


14  COMPENSATION  INSURANCE 

the  growth  of  the  conservation  idea,  the  development 
of  a  knowledge  of  consequences  through  statistical 
studies,  and  direct  financial  pressure  on  employers 
through  laws  compelling  the  payment  of  compensa- 
tion to  workmen,  we  find  rapidly  increasing  and  effec- 
tive interest  in  the  subject. 

Agencies  of  Accident  Prevention. — The  State  should 
be  the  primary  force  in  the  prevention  of  accidents 
since  it  represents  all  classes  and  is  in  a  position  to 
exercise  compulsion.  That  our  governments  have  been 
far  behind  Europe  in  safety  activity  has  been  due 
largely  to  ignorance  of  the  possibilities  of  such  work 
and  to  absence  of  the  demand  for  it  because  of  our 
less  highly  concentrated  population.  One  of  the  first 
examples  of  state  interference  in  the  cause  of  safety  is 
the  Safety  Appliance  Law  passed  by  the  Federal  Gov- 
ernment in  1893,  aimed  specifically  at  accidents  due  to 
the  dangerous  methods  of  coupling  cars  then  in  vogue 
on  interstate  railroads.  This  law  has  since  been  con- 
siderably extended  to  cover  a  wider  range  of  railroad 
work.  The  individual  states  have  passed,  from  time 
to  time,  laws  for  the  elimination  of  specific  unsafe 
practices  and  for  the  general  improvement  of  condi- 
tions in  dangerous  trades,  but  their  enforcement  has 
usually  been  lax  and  productive  of  little  good. 

As  a  result,  however,  of  steadily  growing  interest 
during  the  last  six  or  seven  years  legislatures,  backed 
by  public  demand,  are  enacting  more  effective  statutes, 
in  some  cases  independent  of  a  Workmen's  Compen- 
sation Act,  but  more  often  supplementary  thereto. 
The  most  important  feature  of  these  later  enactments 
has  been  the  creation  of  expert  commissions  for  the 


THE  PREVENTION  OF  ACCIDENTS       15 

collection  of  information  and  the  enforcement  of  the 
law.  These  commissions  are  usually  empowered  to 
make  inspections  and  require  the  installation  of  safety 
devices,  and  make  annual  reports  of  the  progress  of 
their  work.  More  significant  still  is  the  educational 
work  which  they  are  carrying  on  through  the  publica- 
tion of  pamphlets,  the  promulgation  of  safety  stand- 
ards, public  exhibitions  and  lectures,  safety  museums 
and  libraries,  and  conferences  with  individual  em- 
ployers. 

The  latest  development  of  the  governmental  pro- 
gram is  the  adoption  of  safety  as  a  subject  of  instruc- 
tion in  the  public  schools.  New  Jersey  passed  a  law 
in  1913  requiring  courses  to  be  installed  and  other 
states  are  becoming  interested  in  this  branch  of  the 
work.  Capably  administered,  this  should  be  an  effec- 
tive method  of  reducing  accidents.  Its  idea  is  to  make 
accident  prevention  a  part  of  the  every-day  conscious- 
ness of  the  population  and  the  accomplishment  of  this 
end  is  of  fundamental  importance. 

Employers,  after  years  of  ignorance  and  apathy,  are 
fast  becoming  awakened  to  the  humanitarian  and 
financial  gains  arising  from  accident  prevention  and 
are  expending  an  immense  amount  of  thought  and 
money  to  decrease  the  accident  hazard  in  their  plants. 
The  United  States  Steel  Corporation  was  a  pioneer 
in  safety  work  and  has  developed  its  organization  and 
methods  to  a  very  high  pitch  of  efficiency.  Leading 
corporations  in  other  lines  have  also  made  great  ad- 
vances in  the  direction  of  industrial  safety  and  it  is 
only  a  question  of  time  before  every  corporation  of 
any  size  will  recognize  accident  prevention  as  one  of 


16  COMPENSATION  INSURANCE 

the  most  important  phases  of  its  activity.  Manufac- 
turers of  machinery  are  responding  to  the  demand, 
and  dangerous  machines  are  now  carrying  guards  as 
regular  equipment.1  The  manufacture  of  safety  de- 
vices is  becoming  an  independent  industry  and  invent- 
ors are  constantly  working  on  new  ideas  for  more 
efficient  protection. 

One  of  the  greatest  aids  to  the  employer  in  the  so- 
lution of  safety  problems  is  the  insurance  company. 
These  companies,  on  the  payment  of  a  stipulated  pre- 
mium, assume  the  liability  of  the  employer  to  pay  dam- 
ages or  compensation  to  his  employees  on  account  of 
accidents,  and  one  of  their  chief  inducements  is  the 
offer  of  expert  advice  on  safety  work  whereby  the 
employer  may  not  only  reduce  his  accidents  but  may 
also  secure  substantial  reductions  in  the  rate  of  pre- 
mium. Competition  in  this  service  has  developed  in- 
spection departments  which  are  of  very  real  economic 
value.  In  addition  to  personal  inspection  and  advice, 
pamphlets  dealing  with  safety  are  published,  warning 
signs  are  furnished,  and  some  companies  issue  small 
volumes  which  are  practically  text-books  of  accident 
prevention. 

Two  cooperative  enterprises  for  improving  safety 
conditions  merit  especial  mention:  the  American  Mu- 
seum of  Safety  and  the  National  Safety  Council. 
These  organizations  are  supported  by  membership 
fees  and  contributions  of  industrial  corporations  and 
public-minded  associations  and  individuals. 

1  One  industrial  corporation  makes  a  practice,  whenever  a  ma- 
chine comes  to  them  insufficiently  protected,  of  adding  the  neces- 
sary guards  and  deducting  the  cost  from  the  bill  for  the  machine. 


THE  PREVENTION  OF  ACCIDENTS        17 

The  American  Museum  of  Safety,  in  New  York 
City,  is  a  clearing-house  and  exhibition  place  for  safety 
methods  and  appliances  and  is  modeled  after  the  great 
safety  museums  of  Germany  and  other  European  coun- 
tries. Safety  devices  and  models  have  been  collected 
and  are  displayed  for  the  inspection  of  anyone  in- 
terested. A  library  is  also  maintained  and  educational 
work  is  carried  on  through  illustrated  lectures  and 
the  distribution  of  pamphlets.2 

The  National  Safety  Council,  with  headquarters  in 
Chicago,  is  the  parent  organization  of  large  numbers 
of  local  councils  located  in  the  principal  cities.  Its 
chief  features  are  weekly  bulletins  of  statistics  and 
safety  illustrations,  an  information  bureau  for  mem- 
bers, and  annual  Safety  Congresses.  These  con- 
gresses attract  safety  experts  from  every  industry  and 
the  papers  and  informal  discussions  are  of  great  value. 

Thus  far  the  function  of  the  workman  in  the  pre- 
vention of  accidents  has  not  been  mentioned,  though 
he  is  an  all-important  factor  in  the  success  of  any 
plan  for  the  promotion  of  industrial  safety.  The 
work  of  employers  and  the  state  can  be  made  effective 
only  through  his  intelligent  and  active  cooperation 
and  hence  all  safety  organizations  are  built  around 
the  fundamental  idea  of  awakening  the  interest  of  the 
employee  in  his  own  welfare.  Initiative  and  admin- 
istration must  come  from  the  employing  class,  but  the 
greater  part  of  the  reduction  in  accident  rates  is  due 
directly  to  the  care  and  efforts  of  the  workers. 

Methods   of  Accident   Prevention. — The    develop- 

2  Massachusetts  and  California  have  Museums  of  Safety  main- 
tained by  the  State. 


18  COMPENSATION  INSURANCE 

ment  of  efficient  methods  for  the  prevention  of  acci- 
dents must  rest  on  an  accurate  knowledge  of  causes. 
Hence  a  prerequisite  to  the  establishment  of  a  safety 
organization  and  the  installation  of  preventive  appli- 
ances is  a  careful  study  of  causes  and  their  relative 
significance.  For  example,  Illinois  statistics  show 
that  "falling  objects"  were  responsible  for  19  per 
cent  of  the  accidents  occurring  during  the  six  months 
ending  December  31,  1913,  and  that,  in  each  class  of 
industry,  the  number  attributable  to  this  cause  far  ex- 
ceeded that  due  to  any  other.  These  facts  would  indi- 
cate the  necessity  of  giving  primary  emphasis  to  the 
prevention  of  such  accidents  and  would  probably  war- 
rant the  expenditure  of  a  relatively  large  amount  of 
attention  and  money  for  that  purpose.  A  further 
study  might  show  that  these  accidents  give  rise  to 
comparatively  short  periods  of  disability  and  that  an- 
other less  numerous  class  results  in  greater  total  loss. 
In  that  case  the  emphasis  would  be  shifted.  This  is 
but  a  suggestion  of  the  need  for  careful  scientific  con- 
sideration of  every  element  of  the  problem  as  a  basis 
for  effective  work. 

The  simplest  method  of  protecting  workmen  is  the 
use  of  mechanical  guards  to  prevent  falls  and  con- 
tact with  dangerous  machinery  and  to  catch  flying 
particles,  and  tools  or  materials  which  may  have  been 
dropped.  Familiar  examples  are  covers  for  gears  and 
belting,  railings  on  elevated  runways,  wire  screens  be- 
fore metal  chipping  machines  and  strips  of  metal  or 
wood  on  the  edges  of  scaffolding.  Machines  are  often 
redesigned  to  render  their  operation  safer;  de- 
vices for  stopping  machinery  are  applied  and  the  parts 


THE  PREVENTION  OF  ACCIDENTS        19 

are  made  more  accessible  for  cleaning  and  oiling.  Ar- 
rangements are  also  made  to  prevent  setting  machin- 
ery in  motion  while  men  are  engaged  in  repair  work, 
and  methods  of  lighting  are  used  which  give  the  em- 
ployee the  clearest  possible  view  of  his  work.  Warn- 
ing signs,  designed  with  a  view  to  compelling  atten- 
tion, are  used  to  remind  the  employee  of  the  presence 
of  danger.  Besides  signs  to  guard  specific  danger 
zones,  large  placards  and  electric  signs  are  placed  in 
prominent  positions  to  keep  the  idea  of  "safety  first" 
constantly  in  the  mind  of  the  employee.3 

The  success  of  a  program  of  accident  prevention 
should  be  measured  in  terms  of  the  consequences  of 
accidents  as  well  as  of  accident  frequency,  and  every 
effort  should  be  made  to  reduce  the  period  of  disa- 
bility due  to  them.  "First  aid"  is  an  essential  feature 
of  a  comprehensive  scheme  and  the  larger  plants  now 
have  their  own  hospitals  with  physicians  who  attend 
to  all  injuries  free  of  charge.  It  is  usually  required 
that  every  injury,  no  matter  how  slight,  be  submitted 
for  examination.  Smaller  plants  have  visiting  physi- 
cians or  make  arrangements  for  treatment  at  some 
general  hospital.  This  treatment  often  substitutes  a 
loss  of  a  few  minutes  for  a  protracted  period  of  dis- 
ability, as  many  apparently  slight  injuries  develop  into 
serious  cases  of  infection  if  not  attended  to  at  the  out- 
set. 

3  Illustrations  of  various  methods  of  accident  prevention  by 
use  of  mechanical  guards  are  given  on  pages  20-23. 

For  the  illustrations  of  methods  of  accident  prevention  used 
in  this  chapter  the  author  is  indebted  to  the  United  States  Steel 
Corporation,  with  the  exception  of  Illustration  III,  which  was 
furnished  by  the  Benjamin  Electric  Mfg.  Co. 


ILLUSTRATION  I 
Lathe    Gears   Unguarded. 


ILLUSTRATION  II 
Lathe   Gears   Guarded. 


20 


THE  PREVENTION  OF  ACCIDENTS        21 

Carelessness  and  improper  methods  of  work  give 
rise  to  many  avoidable  injuries.  These  conditions  can 
be  corrected  only  through  educational  methods.  Bul- 
letins are  posted  wherever  the  men  are  likely  to  read 
them,  magazines  are  issued  in  which  safety  hints  are 


ILLUSTRATION  III 

Stamping    Press    Redesigned    to    Require    Placing 
Hands  on  Levers  in  Order  to  Operate  Machine. 


Both 


combined  with  other  topics  of  general  interest.  Stere- 
opticon  lectures  are  given  by  safety  experts  and  in 
some  cases  the  men  are  paid  to  attend.  To  supplement 
these  general  means,  individual  instruction  is  given, 
rule  books  are  distributed,  and  examinations  set,  with 
prizes  for  correct  answers.  In  every  possible  way  an 
attempt  is  made  to  point  out  to  the  workman  that  it  is 


22  COMPENSATION  INSURANCE 

to  his  overwhelming  advantage  to  assist   in   safety 
work. 

As  in  all  extensive  undertakings  involving  the  co- 
operation of  a  large  number  of  individuals,  organiza- 
tion is  the  prime  essential  for  the  successful  operation 
of  a  safety  system.  The  proper  development  of  an 
organization  requires  careful  adaptation  of  its  units 
to  each  special  branch  of  work  and  coordination  of 
the  units  in  a  centralized  and  harmonious  scheme.  The 


ILLUSTRATION  IV 
Square    and    Circular    Knife    Holders. 

organization  of  the  United  States  Steel  Corporation 
may  be  taken  as  an  example  of  the  successful  solution 
of  this  problem;  In  1906  a  Committee  of  Safety  was 
appointed  from  among  the  officials  of  the  subsidiary 
companies  and,  since  that  date,  this  committee  has 
been  in  supreme  charge  of  the  safety  work  of  the  Cor- 
poration. It  considers  safety  methods  and  appliances, 
conducts  inspections  of  individual  companies,  studies 
serious  accidents,  and  makes  recommendations  for 
improvements.  As  a  clearing  house  for  ideas  and  ex- 
perience from  every  section  of  the  Corporation  the 
Bureau  of  Safety,  Sanitation,  and  Welfare  has  been 


-0 
oj 

o 


>    .S 


rt 

O 


24  COMPENSATION  INSURANCE 

established.  This  bureau  has  headquarters  in  New 
York  City  and  is  in  charge  of  a  general  manager 
whose  entire  time  is  given  to  the  collection  of  sta- 
tistics and  photographs  and  to  the  coordination  and 
administration  of  the  safety,  sanitation,  and  welfare 
work  of  the  Corporation. 

Each  subsidiary  company  has  its  Central  Commit- 
tee of  Safety  composed  of  representatives  from  the 
department  of  safety  and  relief,  the  legal  and  the 
surgical  departments,  and  from  the  various  plants.4 
To  assist  this  committee  on  special  problems  subcom- 
mittees of  master  mechanics,  electrical  engineers,  blast 
furnace  superintendents,  and  others,  are  consulted. 
Each  plant  has  its  own  committee,  under  which  are 
the  safety  inspector,  special  committees,  department 
committees,  a  safety  instructor,  and  committees  of 
foremen  and  workmen.  Each  of  these  units  has  in 
charge  the  work  for  which  it  is  best  adapted  and  each 
is  connected  with  the  central  committee  through  an 
unbroken  line  of  responsibility.  Frequent  meetings 
are  held,  inspections  are  made,  and  recommendations 
for  improvements  are  considered,  reports  on  all  of 
these  activities  being  made  to  the  superior  commit- 
tees which  take  final  action.5 

Although  no  one  of  the  methods  of  accident  preven- 
tion outlined  should  be  neglected,  they  are  not  all  of 
equal  importance  in  their  results.  Mere  safeguarding 
of  machines  can  accomplish  little  without  education 

4  The  organization  of  the  Illinois  Steel  Co.  will  be  treated  as 
typical  of  the  methods  in  vogue  in  all  subsidiary  companies. 

8  For  a  graphic  outline  of  this  organization  see  the  diagram  on 
the  opposite  page. 


THE  PREVENTION  OF  ACCIDENTS        25 


SAFETY  &  SANITATION    COMMITTEES 
ILLINOIS  STEEL  CO. 


of  employees  and  the  successful  carrying  out  of  any 
scheme  depends  largely  on  the  organization  behind 
it.  Robert  J.  Young,  Manager  of  the  Department  of 
Safety  and  Relief  of  the  Illinois  Steel  Company,  has 
made  the  following  estimate  of  the  relative  efficiency 
of  the  several  methods : 

Organization $$% 

Attitude   and   personal   work   of   those   in 

authority 30% 

Safety   Committees 20% 

Inspections  (not  by  committees) $% 


26  COMPENSATION  INSURANCE 

Education . . . . 2$% 

Instruction  to  employees 12% 

Bonuses,  prizes,  etc S% 

Talks  by  superintendents,  foremen,  and  oth- 
ers     3% 

Signs    2% 

Safeguarding 20% 

Safety  devices 12% 

Lighting 5% 

Cleanliness  and  order 3% 

Any  such  estimate  is,  of  course,  not  final,  but  serves 
as  an  indication  of  the  relative  importance  to  be  at- 
tached to  various  activities  in  connection  with  safety 
work. 

Occupational  Diseases. — The  problem  of  diseases 
arising  from  a  workman's  occupation  is  a  phase  of 
industrial  hazard  which  has  been  given  less  attention 
than  the  problem  of  violent  accidents.  While  less  spec- 
tacular it  is  worthy  of  careful  study,  and  efforts  for 
prevention  should  take  the  same  direction,  with  the 
emphasis  on  medical  care  and  the  prevention  of  in- 
fection. 

References  at  end  of  Chapter  III. 


CHAPTER  III 

THE  RESULTS  OF  ACCIDENT  PREVENTION 

x 

Since  the  aim  of  accident  prevention  is  reduction 
of  the  losses  occasioned  by  industrial  accidents,  its  re- 
sults should  be  measured  in  terms  of  saving  to  those 
who  have  experienced  such  losses.  Society  is  benefit- 
ed by  an  increase  in  general  productiveness  and  a 
decrease  in  the  expense  of  caring  for  the  injured  and 
their  dependents  and  of  hearing  damage  suits.  The 
employer  gains  through  increased  efficiency  due  to 
avoidance  of  friction  and  greater  permanence  of  his 
labor  force,  as  well  as  through  lessened  expense  for 
insurance  or  for  defending  damage  suits  and  paying 
claims.  The  employee  receives  more  wages,  loses  less 
time,  and  both  he  and  his  dependents  avoid  suffering 
and  privation.  A  considerable  body  of  figures  exists 
showing  reduced  accident  frequency  and  consequent 
economic  saving  due  directly  to  organized  accident 
prevention. 

Reduction  in  Accident  Frequency. — Reduction  in 
accident  frequency  is  the  most  immediate  and  striking 
result  of  safety  work.  A  careful  record  of  the  dis- 
abling injuries  occurring  in  a  large  steel  plant  from 
1900  to  1911  shows  the  effect  of  a  developing  safety 
program.  These  accidents  were  reduced  from  370 
per  one  thousand  3OO-day  workers  in  1900  to  109  per 

27 


28 


RESULTS  OF  ACCIDENT  PREVENTION      29 

one  thousand   in    1911,   a  decrease  of   over  70  per 
cent.1 

The  diagram  on  page  28  shows  this  experience  by 
years.  In  connection  with  this  diagram  the  records 
for  the  years  1906  and  1909  are  particularly  signifi- 
cant. "It  may  be  stated  that  the  year  1906  repre- 
sented a  period  of  thorough  reorganization  and  safe- 
guarding throughout  the  machine  shops  and  in  con- 
nection with  other  mechanical  operations  and  that  the 
accident  rate  shows  a  definite  response  to  these  ef- 
forts." 2  "Increased  output  accompanied  by  'speed- 
ing up'  the  workmen  always  increases  the  danger. 
The  year  1909  was  a  'speeding  up'  year.  It  was  also 
a  year  of  employment  of  many  new  workmen.  Its 
accident  rate  reflects  these  conditions."  3 

In  this  same  investigation  a  study  was  made  of  two 
plants  having  extreme  conditions  as  to  safety  sys- 
tems. "Plant  A  stands  high  on  the  list  of  those 
that  have  undertaken  successfully  safety  activities. 
Plant  X,  on  the  other  hand,  is  among  those  which 
may  be  said  to  have  done  almost  nothing  in  this  di- 
rection." During  1910  Plant  A  showed  an  accident 
rate  of  180  per  one  thousand  3OO-day  workers,  while 
Plant  X  had  a  rate  of  508, "  nearly  three  times  as 
great.4  Another  study,  in  which  sixteen  plants  were 
classified  according  to  the  development  of  their  safety 
systems,  showed  the  following  results :  5 

1  Report  on  the  Iron  and  Steel  Industry,  Vol.  IV.,  p.  118. 

2  Thid,  p.  120. 

3  Ibid,  p.  121. 

4  Ibid,  p.  59- 

5  Ibid,  p.  43  ff. 


30  COMPENSATION  INSURANCE 

Accident  Rates 
per  1000300- 
day  workers. 
Class  A   (System  well  developed)6.  . . 167.1 

Class  B   (System  in  process  of  development)  .  .272.4 
Class  C  (System  not  developed) 507.9 

Further  notable  examples  of  reduction  in  accident 
rates  through  safety  work  are  given  in  the  following 
table :  7 

American  Smelting  &  Refining  Company 24% 

Bucyrus  Company 65% 

Cadillac   Motor   Company 69% 

Commonwealth  Edison  Company 40% 

Commonwealth  Steel  Company 69% 

Corn  Products  Refining  Company 37% 

Eastman  Kodak  Company , 78% 

Fairbanks-Morse  Mfg.  Company 72% 

George  Cutter  Company 43% 

Harrison  Bros.  &  Company,  Inc 75% 

Illinois  Steel  Company 85% 

Inland  Steel  Company 35% 

International    Harvester    Company 88% 


"The  essentials  of  a  safety  system  likely  to  prove  effective 
may  be  summarized  as  follows.  In  plants  of  Class  A  all  the 
factors  specified  are  present: 

1.  Safeguarding  by  signs,  warnings  and  mechanical  con- 

trivances. 

2.  Adequate  safety  inspection. 

3.  Safety  committees  of  superintendents  and  foremen. 

4.  Safety  committees   of   workmen. 

5.  Emergency  and  hospital  care  of  the  injured. 

6.  A  compensation  system. 

7.  Provision  for  the  permanently  disabled." 

7  These  figures  are  printed  through  the  courtesy  of  The  Ameri- 
can Museum  of  Safety. 


RESULTS  OF  ACCIDENT  PREVENTION  31 

Jones  &  Laughlin  Steel  Company  ...............  78% 

A.  J.  Lindemann  &  Hoverson  Company  ........  62% 

Milwaukee  Coke  &  Gas  Company  ...............  83% 

Neenah  Paper  Company  ......................  83% 

Packard  Motor  Car  Company  .................  J2% 

The  Pullman  Company  .......................  46% 

Raritan   Copper  Works  .......................  22% 

Rochester  Railway  &  Light  Company  ...........  33% 

United  States  Steel  Corporation  .........  .  ...... 


(The  reduction  of  the  accident  rate  is,  to  a  certain 
extent,  cumulative  since  continuity  of  employment  tends 
to  a  further  reduction  of  the  rate.  A  new  man,  em- 
ployed because  of  the  incapacity  of  the  injured  employee, 
is  much  more  subject  to  accidents  than  one  who  has 
worked  continuously.) 

Reduction  in  Loss  of  Time  and  Wages.  —  From  an 
economic  point  of  view  the  chief  index  of  loss  from 
accidents  is  the  loss"  of  time.  In  a  large  steel  plant, 
employing  6,624  men  the  total  time  lost  was  reduced 
from  22,963  days  in  1905  to  18,002  days  in  1910,  a 
saving  of  4,961  days  through  the  adoption  of  safety 
measures.  The  average  number  of  days  lost  per  300- 
day  worker  was  reduced  from  4.28  in  1905  to  2.96  in 
I9io.8  Assuming  a  wage  of  $2.00  per  day,  this  rep- 
resents a  saving  during  the  year  1910  of  $9,922  for 
the  working  force  of  the  plant,  and  of  $2.64  for  each 
3OO-day  worker.  In  two  plants  having  extreme  con- 
ditions as  to  safety  systems,  there  was,  during  1910, 
a  difference  of  6.1  days  per  3OO-day  worker  in  favor 
of  the  plant  with  a  we'll  developed  system,  representing 

8  Report  on  the  Iron  and  Steel  Industry,  Vol.  IV.,  p.  57. 


32  COMPENSATION  INSURANCE 

a  wage  saving  of  $12.20.  In  Wisconsin  safety  work 
has  resulted  in  large  reductions  in  the  number  of  days 
lost 9  and  it  is  probable  that,  were  figures  available, 
the  same  results  would  be  evident  in  other  states.10 

The  Massachusetts  Industrial  Accident  Board  has 
published  a  study11  showing  the  results  of  a  cam- 
paign to  secure  the  installation  of  safety  devices  and 
organizations.  These  figures  may  be  slightly  inaccu- 
rate owing  to  the  tact  that,  during  the  second  of 
the  periods  considered,  the  assumption  was  made  that 
there  had  been  no  change  in  the  number  of  employees 
in  the  various  plants.  Even  with  this  qualification, 
the  study  is  extremely  valuable  and  the  results  may 
be  considered  as  approximately  correct.  Data  were 
first  collected  for  the  six-months'  period  ending  De- 
cember 31,  1913,  from  factories  employing  a  total  of 
over  55,000  men.  During  the  succeeding  six  months 
inspections  of  the  factories  were  made  and,  on  the 
basis  of  the  inspections  and  an  analysis  of  the  data, 
recommendations  were  made  for  improvement,  and 
employers  were  urged  to  adopt  effective  means  for 
promoting  safety.  As  a  measure  of  the  success  of  the 
campaign  figures  were  again  collected  for  the  six 
months  ending  December  31,  1914,  and  these  were 
compared  with  the  corresponding  data  for  the  preced- 

8  See  "Organized  Accident  Prevention,"  by  C.  W.  Price. 

10  The  figures  given  in  this  paragraph  have  reference  only  to 
the  loss  of  time  occasioned  by  non-fatal  accidents.    The  reduction 
in  loss  through  death,  computed  on  a  basis  of  working-life  ex- 
pectancy, would  add  greatly  to  their  significance  but  the  necessary 
information  is  not  available. 

11  Massachusetts   Industrial   Accident   Board,  Bulletin   No.   13, 
October,  1915. 


RESULTS  OF  ACCIDENT  PREVENTION      33 

ing  year.     This  comparison  gave  the   following  re- 
sults : 12 

REDUCTIONS  IN  ACCIDENT  FREQUENCY  AND  GRAVITY 


Reported  accidents ., 20.8 

Disability  cases 20.3 

Days   lost 1 36.8 

Wage    loss 36.0 

Compensation  cases , 28.6 

Compensation  days. 44.2 

Compensation  paid 41.1 

A  reported  accident  is  one  for  which  a  notice  of  in- 
jury was  sent  in  by  the  employer,  it  being  required 
that  all  accidents,  however  slight,  be  reported  to  the 
Board.  "A  disability  case  is  one  in  which  there  was 
disability  on  any  day  or  shift  other  than  the  one 
on  which  the  injury  occurred,"  and  a  day  lost  is  any 
such  other  day.  The  wage  loss  is  secured  from  the 
accident  reports.  A  compensation  case  is  one  on  ac- 
count of  which  payments  were  made  under  the  com- 
pensation act  for  total  disability,  the  act  providing 
that  compensation  shall  be  paid  after  the  first  two 
weeks  of  disability  only.  A  compensation  day  is  one 
for  which  payment  was  made  and  the  item  of  "com- 
pensation paid"  represents  the  actual  amount  received 
for  cases  of  total  disability. 

Net  Saving. — So  far  only  gross  saving  has  been 
considered,  but  to  analyze  the  situation  accurately  the 
net  saving  should  be  determined,  for  accident  preven- 

u  ibid,  p.  15. 


34  COMPENSATION  INSURANCE 

tion  involves  large  expenditures  and  its  results  should 
be  judged  in  comparison  with  the  cost  of  obtaining 
them.  Such  a  judgment  must  be  based  on  a  broad  in- 
terpretation of  the  terms  "results"  and  "costs,"  for 
they  include  some  items  which  cannot  be  numerically 
expressed  and  others  the  value  of  which  is  not  read- 
ily ascertainable.  For  example,  suffering  cannot  be 
expressed  in  figures  nor  is  the  value  of  a  decrease  in 
friction  and  labor  troubles  easily  computed.  Another 
difficulty  in  making  an  accurate  judgment  at  present 
arises  from  lack. of  experience  and  incompleteness  of 
data.  In  the  greater  number  of  plants  accident  pre- 
vention is  a  development  of  the  last  two  or  three  years 
and  in  few  have  trustworthy  records  been  kept  even 
for  that  length  of  time.  In  only  one  published  re- 
port has  it  been  possible  to  find  a  statement  of  the 
money  saving  as  compared  with  expenditures  for  ac- 
cident prevention.  The  United  States  Steel  Corpora- 
tion reports  a  gross  saving  in  casualty  expense  for 
serious  injuries  of  $4,775,692.64  during  the  years  1911, 
1912  and  1913.  The  expenditures  for  safety  which 
produced  this  saving  amounted  to  $2,003,712.29,  leav- 
ing a  net  saving  of  $2,77i,98o.35.13 

Such  figures  indicate  very  definitely  that  the  pre- 
vention of  accidents  may  result  in  financial  saving  to 
the  employer  and  it  is  the  opinion  of  most  employers 
who  have  adopted  active  safety  measures  that  a  net 
saving  is  actually  produced.  The  statements  that 
"safety  work  is  indispensable  to  an  efficient  manufac- 
turing organization"  and  that  "in  our  opinion  there  is 

13  U.   S.   Steel   Corporation.     Bureau  of   Safety,   Sanitation  & 
Welfare.    Bulletin  No.  5,  Dec.,  1914.    See  diagram,  p.  35. 


RESULTS  OF  ACCIDENT  PREVENTION      35 

no  question  that  all  efforts  towards  'safety  first'  are 
good  business  and  produce  profits"  are  examples  of 


this  attitude.    In  addition,  the  fact  that  those  corpora- 
tions which  have  long  had  a  reputation   for  "hard- 


36  COMPENSATION  INSURANCE 

headed,  practical  business  sense,"  are  leading  in  safety 
work  is  evidence  of  its  probable  contribution  to  profits. 

CONCLUSION 

It  has  been  shown  that  an  immense  number  of  in- 
dustrial accidents  which  cause  large  losses  to  society 
and  to  particular  classes  of  society  occur  every  year, 
and  that  the  burden  of  these  losses  falls  most  heavily 
on  the  working  class,  the  group  least  able  to  bear  it. 
Responsibility  for  the  occurrence  of  a  large  share  of 
these  accidents  has  been  definitely  assigned  to  present 
methods  of  conducting  industry.  Further,  it  has  been 
demonstrated  that  a  considerable  percentage  of  indus- 
trial accidents  may  be  prevented  by  the  adoption  of 
thoroughly  practicable  safety  measures.  That  the 
adoption  of  such  measures  results  in  a  tremendous 
economic  saving  to  society  and  to  individuals  is  un- 
questioned; that  this  saving  more  than  counterbal- 
ances the  economic  cost  of  prevention  is  almost  cer- 
tain. If  the  relief  of  suffering  and  privation  is  con- 
sidered, all  doubt  of  the  desirability  of  active  meas- 
ures of  prevention  is  removed. 

But  even  the  most  thoroughgoing  efforts  to  prevent 
industrial  accidents  have  not  succeeded  in  eliminating 
them  entirely  and  their  total  elimination  is  inconceiv- 
able so  long  as  the  human  being  is  a  factor  in  indus- 
try. The  greater  part  of  our  industries  have  not  even 
reached  this  irreducible  minimum,  for  many  employ- 
ers still  regard  safety  work  as  a  "socialistic  fad"  and 
effective  compulsion  is  exercised  in  but  few  states. 
Accidents,  preventable  and  unpreventable,  happen 
every  day  and  create  a  problem  that  demands  solution. 


RESULTS  OF  ACCIDENT  PREVENTION      37 

For  the  problem  of  preventable  accidents  there  is  only 
one  solution.  For  those  which  can  not  be  prevented 
some  means  of  compensation  for  economic  loss  should 
be  provided. 

REFERENCES 

Accidents  and  Accident  Prevention,  Vol.  IV.  of  Report 
on  Conditions  of  Employment  in  the  Iron  and  Steel 
Industry  in  the  United  States.  62d  Congress,  ist 
Session,  Senate  Document  No.  no,  Washington 


HOFFMAN,  FREDERICK  L.  Industrial  Accident  Statistics, 

Bulletin  of  the  U.  S.  Bureau  of  Labor  Statistics, 

No.  157.    Washington  (1915). 
Seventh  Annual  Report  of  the  Bureau  of  Labor  Statis- 

tics, and  Supplement,  Springfield,  111.,  1914,  1915. 
Accident  Bulletin.    Published  quarterly  by  the  Interstate 

Commerce  Commission,  Washington. 
Bulletins  on  Mine  Accidents,  Published  by  the  Bureau 

of  Mines,  Washington. 
BEYER,    DAVID    S.      "Industrial    Accident    Prevention," 

Houghton  Mifflin,  Boston  (1916). 
Proceedings   of  the   Safety   Congress   of  the   National 

Safety  Council.     (Annual),  Chicago. 
Bulletin  of  the  Bureau  of  Safety,  Relief,  Sanitation  and 

Welfare  of  the  U.  S.  Steel  Corporation.    Nos.  4  and 

5,  New  York. 
Annual  Report  of  the  Massachusetts  Industrial  Accident 

Board.    Boston. 
The  Sequel  to  the  Invitation  to  Employers  to  Organize  for 

Safety,   Bulletin   No.    13,   Massachusetts   Industrial 

Accident  Board,  Boston   (1915). 
Annual  Report  of  the  Industrial  Insurance  Department, 

Olympia,  Washington. 


38  COMPENSATION  INSURANCE 

Annual  Report  of  the  Industrial  Accident  Commission, 

San   Francisco. 
PRICE,  C.  W.  "Organized  Accident  Prevention,"  Safety 

Engineering    (January,   1915). 


PART  II 

EMPLOYERS'  LIABILITY  AND  WORKMEN'S 
COMPENSATION 


CHAPTER  IV 

THE  LAW  OF  NEGLIGENCE  AS  APPLIED  TO  THE  RE- 
LATION OF  MASTER  AND  SERVANT 

The  Law  of  Negligence. — The  law  of  negligence 
is  a  branch  of  the  common  law  and  consists  of  a  set 
of  rules  for  determining  the  legal  liability  of  one  per- 
son to  another  for  injuries  caused  by  an  unintentional 
neglect  of  duty.  In  any  given  case  it  is  attempted  to 
determine  who  is  at  fault  (i.  e.,  guilty  of  negligence) 
and  to  assess  damages  upon  the  guilty  party  for  the 
benefit  of  the  person  injured  by  the  fault.  Actionable 
negligence  may  be  defined  as  follows:  "Negligence, 
constituting  a  cause  of  civil  action,  is  such  an  omis- 
sion, by  a  responsible  person,  to  use  that  degree  of 
care,  diligence  and  skill  which  it  is  his  legal  duty  to 
use  for  the  protection  of  another  party  from  injury 
as,  in  a  natural  and  continuous  sequence,  causes  un- 
intended damage  to  the  latter."  1  An  analysis  of  this 
definition  reveals  the  essentials  of  a  cause  of  action 
for  negligence : 

"Negligence  consists  in: 

1.  A  legal  duty  to  use  care; 

2.  A  breach  of  that  duty; 

3.  The  absence  of  distinct  intention  to  produce 

the  precise  damage,  if  any,  which  actually 
follows. 

1  Shearman  and  Rcdfield  on  the  Law  of  Negligence,  §  3. 

41 


42  COMPENSATION  INSURANCE 

"With  this  negligence,  in  order  to  sustain  a  civil  ac- 
tion, there  must  concur: 
i.  Damage  to  the  plaintiff; 

2,.  A  natural  and  continuous  sequence,  uninter- 
ruptedly connecting  the  breach  of  duty  with 
the  damage,  as  cause  and  effect."  2 

Before  1837  there  were  no  cases  on  the  liability  of 
a  master  to  his  servant  3  and  the  law  of  negligence 
was  applied  wholly  as  between  the  master  and  third 
parties  to  whom 'he  was  liable  for  injuries  caused  by 
his  own  negligence  or  by  that  of  his  servant.4  Black- 
stone,  in  his  Commentaries,  makes  no  mention  of  the 
master's  liability  to  his  servant.  The  law  of  negli- 
gence was  not  applied  to  the  internal  affairs  of  an  in- 
dustrial group,  probably  for  the  reason  that,  in  early 
times,  such  groups  were  on  much  the  same  basis  as 
the  family  and  regulation  of  the  personal  relations  of 
the  members  was  accomplished  without  appeal  to  the 
courts. 

EMPLOYERS'  LIABILITY 

Beginning  with  Lord  Abinger's  decision  in  the  case 
of  Priestly  v.  Fowler,5  there  has  grown  up  a  body 

2  Shearman  and  Redfield  on  the  Law  of  Negligence,  §  5. 

3  The  terms  master  and  servant  are  used  in  law  as  synonymous 
with  the  ordinary  usage  of  employer  and  employee. 

4  "It  is  an  old  and  thoroughly  established  doctrine  that,  where 
the  relation  of  master  and  servant  exists,  the  master  is  responsible 
to  third  persons  for  the  damage  caused  by  the  wrongful  acts  or 
omissions  of  his  servants,  in  the  course  of  their  employment  as 
such."  -  Shearman  and  Redfield,  op.   cit.,  §   141.     This   rule  is 
known  as  the  doctrine  of  respondent  superior. 

63  M.  &  W.   i    (1837). 


THE  LAW  OF  NEGLIGENCE  43 

of  law  defining  the  liability  of  an  employer  to  his  serv- 
ant for  personal  injuries.  The  law  of  employers' 
liability  follows  the  general  principles  of  the  law  of 
negligence  but  has  some  features  peculiar  to  itself.6 
There  are  certain  legal  duties  of  protection  which  the 
master  owes  to  his  servant,  to  whom  he  is  liable  in 
damages  for  the  injurious  consequences  of  his  neglect 
to  use  due  care  in  the  performance  of  such  duties.7 
These  duties  are :  8 

1.  To  employ  suitable  fellow  servants. 

The  master  must  "use  reasonable  care  in  se- 
lecting suitable  and  sufficient  co-servants." 

2.  To  establish  and  promulgate  proper  rules. 

The  nature  of  the  rules  required  is  deter- 
mined by  the  character  of  the  business — 
some  employments  requiring  no  rules.  "Or- 
dinary diligence"  in  establishing  and  enforc- 
ing rules  is  sufficient. 

3.  To  provide  a  safe  place  to  work. 

"  'It  is  the  master's  duty  to  exercise  reason- 
able care  in  furnishing  those  things  which  go 
to  make  up  the  plant  and  appliances,  so  as 
to  have  them  at  the  outset  reasonably  safe 


6  There  is  some  dispute  among  authorities  as  to  whether  these 
features  are  a  natural  application  of  the  established  principles  of 
the  common  law  of  negligence  or  are  the  result  of  the  economic 
philosophy  of  the  judges  with  respect  to  the  peculiar  relation  of 
master  and  servant.  For  discussions  from  different  points  of 
view  see  Bohlen,  "Voluntary  Assumption  of  Risk,"  and  Burdick, 
"Is  Law  the  Expression  of  Class  Selfishness?" 

T  V.  supra,  analysis  of  definition  of  negligence,  pp.  41,  42. 

8  Burdick,  The  Law  of  Torts,  pp.  184  ff. 


44  COMPENSATION  INSURANCE 

for  the  work  of  the  servants  who  are  en- 
gaged in  the  general  employment,  and  fur- 
ther, to  exercise  reasonable  care,  by  means 
of  inspection  and  repairs,  when  needed,  to 
keep  the  plant  and  appliances  reasonably 
safe/  "  9 

4.  To  furnish  safe  appliances.10 

5.  To  warn  of  danger. 

The  master  must  warn  his  servants  and  give 
them  suitable  instructions  where  he  knows 
that  the  employment  is  dangerous  or  would 
discover  it  with  due  care,  and  where  he 
has  reason  to  believe  that  the  servant  does 
not  know  of  the  danger  and  would  not 
discover  it.  The  master's  duty  is  to  do 
"what  a  prudent  master  would  naturally 
do." 

If  the  master  has  properly  performed  all  of  these 
duties  he  cannot  be  held  liable  for  injuries  to  a  serv- 
ant arising  "out  of  and  in  the  course  of  his  employ- 
ment." The  test  of  performance  in  each  instance  is 
relative;  there  must  be  a  reasonable  compliance  with 
the  duty,  taking  into  consideration  the  circumstances, 
the  nature  of  the  business,  and  the  usual  methods  of 
conducting  it.  "  'Reasonably  safe  means  safe  accord- 
ing to  the  usages,  habits,  and  ordinary  risks  of  the 
business.'  "  n  In  no  case  is  the  master  deemed  to  be 

9  Smith  v.  Erie  Ry.  Co.,  67  N.  J.  L.  636,  quoted  by  Burdick. 

10  V.  supra,  under  third  duty  of  master. 

11  Titus  v.  Bradford,  etc.,  Ry.,  136  Pa.  618,  quoted  by  Burdick. 
Italics  not  in  original. 


THE  LAW  OF  NEGLIGENCE  45 

a  guarantor  of  the  safety  of  his  employees;  his  duty 
extends  only  to  the  exercise  of  proper  diligence.  These 
duties  are,  however,  personal  and  the  master  can  not 
relieve  himself  of  responsibility  for  their  performance 
by  delegating  them  to  another. 

Proof  of  Liability. — The  servant,  in  order  to  re- 
cover damages  for  a  personal  injury,  has  the  burden  of 
proof  of  two  points:  first,  that  the  master  failed  to 
exercise  due  care  in  the  performance  of  his  duties; 
and  second,  that  his  failure  was  the  proximate  cause 
of  the  injury.  To  establish  the  first  point  it  must  be 
shown  that  one  or  more  of  the  requirements  of  due 
care,  as  outlined  above,  has  not  been  complied  with; 
to  establish  the  second,  it  is  necessary  to  show  that 
the  absence  of  due  care  operated  efficiently  through 
an  unbroken  chain  of  events  to  produce  the  injury 
complained  of. 

In  an  action  brought  by  a  servant  to  recover  dam- 
ages for  personal  injury  the  master  may  avail  him- 
self of  certain  well-defined  defenses.  He  may  al- 
lege that  the  servant  assumed  the  risk  of  his  injury, 
that  the  injury  was  caused  by  the  negligence  of  a  fel- 
low-servant, or  that  the  plaintiff  contributed  negli- 
gently to  its  occurrence.  The  principles  governing 
these  defenses  have  been  embodied  in  three  legal  doc- 
trines; the  doctrine  of  assumption  of  risk,  the  doctrine 
of  common  employment,  and  the  doctrine  of  contribu- 
tory negligence. 

Assumption  of  Risk. — Under  the  doctrine  of  as- 
sumption of  risk  it  is  held  that  a  master  is  not  liable 
to  his  servant  for  injuries  resulting  from  the  ordi- 
nary risks  of  employment  of  which  the  servant  is  fully 


46  COMPENSATION  INSURANCE 

aware.  "The  general  rule,  resulting  from  considera- 
tions as  well  of  justice  as  of  policy,  is,  that  he  who 
engages  in  the  employment  of  another  for  the  per- 
formance of  specified  duties  and  services,  for  com- 
pensation, takes  upon  himself  the  natural  and  ordi- 
nary risks  and  perils  incident  to  the  performance  of 
such  services.  .  .  ."  12  While  the  principle  of  this 
doctrine  is  not  peculiar  to  the  relation  of  master  and 
servant,  it  is  most  frequently  used  in  actions  involving 
that  relation,  and  some  courts  have  held  that  assump- 
tion of  the  risks  of  employment  is  an  implied  term 
of  the  contract  of  service.  In  certain  states  the  doc- 
trine has  been  applied  to  relieve  the  master  of  liability 
arising  from  actual  negligence  or  from  violation  of 
statutes  requiring  the  installation  of  safety  devices 
where  it  could  be  shown  that  the  servant  had  knowl- 
edge of  the  master's  conduct.13 

Common  Employment. — The  doctrine  of  common 
employment  or  the  " fellow-servant  rule"  relieves  the 
employer  of  liability  if  he  can  show  that  the  accident 
on  account  of  which  damages  are  sought  was  the  re- 
sult of  negligence  on  the  part  of  a  fellow-servant  of 
the  injured  employee.  In  its  most  extreme  form  it  is 
applied  to  all  servants  working  for  the  same  master, 
regardless  of  the  nature  of  their  duties.  The  doctrine 
was  suggested  in  the  decision  in  Priestly  v.  Fowler,1* 
an  English  case,  but  was  first  definitely  stated  in  Mur- 

12 Far-well  v.  B.  &  W.  R.  R.  Corp.,  38  Am.  Decis.  339  (1842). 

"The  master,  however,  is  generally  held  liable  for  injuries  aris- 
ing from  a  defect  which  he  has  promised  to  remedy,  for  a  rea- 
sonable time  after  the  promise  is  made. 

"3  M.  &•  W.  i  (1837).  The  decision  of  the  point  at  issue  in 
this  case  did  not  involve  the  application  of  the  fellow-servant  rule. 


THE  LAW  OF  NEGLIGENCE  47 

ray  v.  South  Carolina  Railroad  Co.15  in  1841.  In  this 
case  a  fireman  brought  suit  for  injuries  caused  by  the 
negligence  of  an  engineer  who  refused  to  alter  the 
speed  of  the  train,  even  after  his  attention  had  been 
called  to  an  obstacle  on  the  track  which  gave  rise  to  the 
accident.  In  his  opinion  Justice  Evans  asserted  that  the 
plaintiff  assumed  the  risk  of  the  negligence  of  his  fel- 
low-servants and  he  was  not  allowed  to  recover  dam- 
ages. There  was,  however,  a  very  strong  dissenting 
opinion. 

While  the  South  Carolina  decision  stands  first  in 
point  of  time,  the  case  of  Farwell  v.  Boston  and  Wor- 
cester Railroad  Corporation  16  has  become  the  leading 
case  both  in  this  country  and  in  England.  Chief  Jus- 
tice Shaw  stated  in  his  opinion  that  the  rule  that  a 
master  should  be  liable  for  the  acts  of  his  servants 
presupposed  that  the  master  and  the  person  injured 
"stand  to  each  other  in  the  relation  of  strangers" — 
and  that  therefore  Farwell,  an  engineer,  could  not 
recover  on  the  ground  that  the  corporation  was  re- 
sponsible for  the  acts  of  a  switch-tender  by  reason 
of  whose  negligence  it  was  alleged  he  had  been  in- 
jured. If  liability  was  to  be  proved  it  must  be  shown 
that  there  was  a  contract  of  indemnification,  ex- 
press or  implied.  But  the  court  held  that  the  assump- 
tion of  the  ordinary  risks  of  the  business  by  the  serv- 
ant was  an  implied  term  of  the  contract  of  employ- 
ment, the  compensation,  "in  legal  presumption,"  be- 
ing adjusted  accordingly;  and  that  the  risk  of  a  fel- 
low-servant's negligence  was  an  ordinary  risk  of  the 

15  36  Am.  Decisions  268. 
"38  Am.  Decis.  339. 


48  COMPENSATION  INSURANCE 

employment.  "We  are  not  aware  of  any  principle 
which  should  except  the  perils  arising  from  the  care- 
lessness and  negligence  of  those  who  are  in  the  same 
employment.  These  are  perils  which  the  servant  is 
as  likely  to  know  and  against  which  he  can  as  effec- 
tually guard,  as  the  master.  They  are  perils  incident 
to  the  service,  and  which  can  be  as  distinctly  fore- 
seen and  provided  for  in  the  rate  of  compensation  as 
any  others." 

Whether  this  rule  is  an  exception  to  the  doctrine  of 
respondeat  superior  or  a  perfectly  natural  and 
logical  application  of  the  doctrine  of  assumption  of 
risk  is  a  mooted  point.  It  is  sufficient  to  note  that 
it  is  applied  only  to  the  relation  of  master  and  serv- 
ant. 

Contributory  Negligence. — Under  the  older  doc- 
trine of  the  common  law  one  who  was  injured  by  the 
negligence  of  another  was  nevertheless  barred  from 
the  recovery  of  damages  if  he  had,  by  his  own  negli- 
gence, in  any  way  contributed  to  the  occurrence  of  the 
injury.  The  present  doctrine  is  less  harsh,  but  con- 
tributory negligence  will  still  bar  recovery  if  it  is  a 
direct  cause  of  the  injury. 

Burden  of  Proof. — In  an  action  to  recover  damages 
from  a  master  on  account  of  injury  the  burden  of 
proof  is  on  the  plaintiff  to  show: 

1.  That  the  master  was  negligent  in  the  perform- 

ance of  his  legal  duties. 

2.  That  the  negligence  of  the  master  was  the  proxi- 

mate cause  of  the  injury. 

3.  If  the  injury  was  caused  by  the  negligence  of 


THE  LAW  OF  NEGLIGENCE  49 

another  servant,  that  he  was  not  a  fellow- 
servant. 

Provided  the  plaintiff  has  established  the  above 
points,  in  order  to  escape  liability  the  burden  of  proof 
is  on  the  defendant  to  show : 

1.  That  the  servant  assumed  the  risk  of  the  injury, 

or 

2.  That  the  servant  by  his  own  negligence  contrib- 

uted to  the  occurrence  of  the  injury.17 

Death  Limitation. — The  common  law  doctrine  that 
right  of  action  for  personal  injury  expires  with  the 
death  of  the  person  injured  18  also  operates  to  relieve 
the  employer  of  liability. 

Contracting  Out. — It  has  been  the  practice  of  some 
employers  to  require  their  employees  to  sign  a  contract 
exempting  them  from  all  liability  on  account  of  per- 
sonal injury,  and  such  contracts  have  been  sustained 
under  the  common  law. 

MODIFICATIONS  OF  THE  COMMON  LAW 

The  common  law  of  employers'  liability  has  been 
modified  to  a  considerable  extent,  both  by  statute  and 
by  judicial  interpretation.  The  doctrine  of  assump- 
tion of  risk  has  been  made  inoperative  in  the  case  of 
injuries  arising  through  the  violation  of  safety  stat- 

17  While  this  is  the  rule  in  England,  in  the  U.  S.  Supreme  Court, 
and  in  the  majority  of  the  state  courts,  the  courts  of  certain  states 
place  the  burden  of  proof  on  the  plaintiff  to  show  an  absence  of 
contributory  negligence.    This  is  true  of  the  courts  of  Conn.,  111., 
Ind.,  la.,  La.,  Me.,  Mass.,  Mich,  Miss,  N.  Y.  and  N.  C 

18  Actio  personalis  moritur  cum  persona. 


50  COMPENSATION  INSURANCE 

utes  by  the  employer,19  and  the  doctrine  of  compara- 
tive negligence,  to  the  effect  that  damages  shall  be  re- 
duced in  proportion  to  the  negligence  attributable  to 
the  employee,  has,  in  some  instances,  replaced  the 
ruling  that  contributory  negligence  is  an  absolute  bar 
to  recovery.20  "Contracting  out"  has  been  prohibited 
in  practically  every  state,  and  the  death  limitation  has 
been  removed  to  permit  surviving  relatives  to  recover 
damages  for  the  death  of  an  employee.  The  burden 
of  proof  has,  in  some  states,  been  shifted  so  as  to  lay 
a  heavier  responsibility  on  the  employer. 

Modifications  of  the  Fellow-servant  Rule. — The 
doctrine  of  common  employment  has  been  modified  to 
a  great  extent,  both  by  limiting  the  definition  of  a 
fellow-servant  and  by  depriving  the  employer  entirely 
of  this  means  of  defense.  In  its  extreme  application 
the  comm.on  law  considers  all  employees  of  the  same 
master  to  be  fellow-servants.  But  many  courts  have 
used  other  tests  than  that  of  mere  common  employ- 
ment to  determine  the  status  of  a  servant  in  rela- 
tion to  another  who  has  been  injured  through  his 
negligence.  One  test  is  based  on  the  nature  of  the 
act  performed — if  the  servant  is  "employed  to  per- 
form an  act,  incident  to  any  of  the  five  classes  of  duties 
which  the  law  imposes  upon  the  master  ...  he  is,  as 
to  that  act,  a  vice-principal2^ — a  true  representative 
of  his  master — and  his  negligence  is  the  master's 
negligence.  If  employed  to  do  any  other  act,  he  is  a 
mere  servant,  no  matter  what  his  rank,  and  for  in- 

ME.  g.,  Ohio,  Mass.,  Federal  Employers'  Liability  Act. 
20  E.  g.,  Cal.,  Ga.,  Ore.,  Federal  Employers'  Liability  Act 
n  Italics  not  in  original. 


THE  LAW  OF  NEGLIGENCE  51 

juries  resulting  to  fellow-servants  from  his  miscon- 
duct, the  master  is  not  liable."  22  This  test  has  been 
adopted  by  the  Supreme  Court  of  the  United  States 
and  by  most  of  the  state  courts.  A  second  test  is  that 
of  the  rank  or  grade  of  employment  of  the  servant 
through  whose  negligence  the  injury  is  caused — 
'  'where  one  servant  is  placed  by  his  employer  in  a 
position  of  subordination  to,  and  subject  to  the  orders 
and  control  of  another,  and  such  inferior  servant, 
without  fault,  and  while  in  the  discharge  of  his  duties, 
is  injured  by  the  negligence  of  the  superior  servant,2* 
the  master  is  liable  for  such  injury.'  "  24  This  rule, 
which  originated  in  Ohio,  has  been  accepted  by  the 
courts  of  several  states,25  while  others  have  incorpo- 
rated it  in  statutes.26  A  third  test  is  provided  by  the 
different  department,  or  consociation,  rule.  "Under 
this  rule  servants  in  different  departments"  or  those 
"not  brought  into  such  personal  relations  that  they 
may  exercise  an  influence  upon  each  other  promotive 
of  their  mutual  safety,  are  not  fellow-servants."  27 
It  has  been  adopted  by  the  courts  in  seven  states  28  and 
has  been  applied  to  railroads  by  statute  in  five.29 
Statutes  have  also  been  passed  completely  abrogat- 


22  Burdick,  The  Law  of  Torts,  p.  207. 

33  Italics  not  in  original. 

MBerea  Stove  Co.  v.  Kraft,  31  Ohio  St.,  287  (1877),  quoted  by 
Burdick. 

25  111.,  La.,  Neb.,  Tenn.,  Tex.,  Utah,  and  in  a  modified  form,  Ky. 

36  Ala.,  Mass.,  N.  Y.,  N.  J.,  Vt,  Penn.,  and  as  to  railroads, 
Miss.,  Mo.,  O.,  Ore.,  S.  C,  Utah,  Va. 

27 Bailey  on  Personal  Injuries,  p.  1551. 

28  111.,  Ky.,  La.,  Mo.,  Neb.,  Utah,  and  as  to  railroads,  Tenn. 

29  Miss.,  Mo.,   S.   C,  Utah,  Va. 


52  COMPENSATION  INSURANCE 

ing  the  fellow-servant  rule  30  or  abolishing  it  in  cer- 
tain industries.31  In  general  the  various  "fellow-serv- 
ant statutes"  may  be  classified  under  five  heads: 

1.  Statutes  entirely  abolishing  the  defense  of  fellow- 

servants   as   to   all   employers   and   all   em- 
ployees. 

2.  Statutes  entirely  abolishing  the  defense  of  fellow- 

servants  as  to  employees  of  railroads. 

3.  Statutes  limiting  the  defense  of  fellow-servants 

as  to  employees  generally. 

4.  Statutes  limiting  the  defense  of  fellow-servants 

as  to  all  corporations. 

5.  Statutes  limiting  the  defense  of  fellow-servants 

as  to  employees  of  railroads. 

6.  Statutes  merely  declaratory  of  the  common  law 

rule.     Most  of  such  statutes  have  been  re- 
pealed by  later  statutes.32 

HISTORICAL  DEVELOPMENT 

The  first  attempt  to  modify  the  common  law  of  em- 
ployers' liability  by  statutory  enactment  was  made  in 
England  in  1880,  when  "The  Employers'  Liability 
Act"  was  passed  by  Parliament.  This  act  provided 
for  a  modification  of  the  fellow-servant  rule  and  en- 
abled the  personal  representatives  of  a  deceased  em- 

30Cal.  and  Colo. 

81  For  a  complete  consideration  of  this  point  see  Bailey,  op.  cit., 
P-  1553  ff. 

82  This   classification  is  given  in  Bailey,  op.   cit.,  pp.    1553-54- 
Volume  II.  of  this  work  is  wholly  given  over  to  the  employer's 
defenses  and  their  modification. 


THE  LAW  OF  NEGLIGENCE  53 

ployee  to  recover  damages  for  death  caused  by  negli- 
gence. The  first  statute  to  be  passed  in  this  country 
was  enacted  in  Alabama  in  1885  and  was  followed 
by  the  Massachusetts  act  of  1887.  Both  of  these 
"employers'  liability  acts,"  as  well  as  those  of  several 
other  states,  were  modeled  closely  after  the  English 
statute.  A  majority  of  the  states  have  now  passed 
laws  defining  an  employer's  liability  to  his  employee, 
practically  all  of  which  are  in  the  nature  of  a  limita- 
tion on  the  employer's  defenses.  A  federal  statute 
was  enacted  in  1908  to  apply  to  inter-state  rail- 
roads. 

The  law  of  employers'  liability  has  developed  in 
sympathy  with  the  trend  of  law  and  opinion  in  other 
fields.  When  the  first  cases  involving  the  relation  of 
master  and  servant  were  decided  the  doctrines  of  in- 
dividualism and  laissez  faire  were  widely  accepted  and 
the  early  decisions  reflected  the  prevailing  philosophy. 
To  be  sure,  the  rules  laid  down  in  employers'  liabil- 
ity cases  can  be  deduced  from  established  principles  of 
the  general  law  of  negligence  but  the  rigidity  of  their 
application  depends  largely  on  the  economic  philoso- 
phy of  the  presiding  judge.  Reasoning  from  the  prin- 
ciple of  respondeat  superior,  it  would  seem  that  the 
master  could  be  held  liable  for  the  consequences  of 
acts  of  fellow-servants  quite  as  logically  as  he  was 
exempted  from  them  under  the  assumption  of  risk 
doctrine.  Speaking  of  the  fellow-servant  rule  an  emi- 
nent English  jurist  says,  "The  Courts,  between  1830 
and  1840,  curtailed  the  extent  of  an  employer's  liabil- 
ity by  grafting  upon  it  an  anomalous  limitation.  .  .  . 
It  belonged  to  the  era  of  individualism,  and  was  xsup- 

5 


54  COMPENSATION  INSURANCE 

ported  by  the  economic  theory,  of  dubious  soundness, 
that  when  a  person  enters  into  any  employment  .  .  . 
the  risks  naturally  incident  to  his  work  are  taken  into 
account  in  the  calculation  of  his  wages."  33  That 
Chief  Justice  Shaw  in  the  Farwell  case  did  not  base 
his  decision  wholly  on  grounds  of  strict  legal  logic 
is  evident  from  his  statement  that  "it  is  competent 
for  courts  of  justice  to  regard  considerations  of  policy 
and  general  convenience,  and  to  draw  from  them  such 
rules  as  will,  in  their  practical  application,  best  pro- 
mote the  safety  and  security  of  all  parties  concerned." 
So  in  cases  involving  the  doctrines  of  contributory  neg- 
ligence and  assumption  of  risk  the  tests  of  the  circum- 
stances which  shall  justify  their  application  are  quite 
likely  to  be  colored  by  the  economic  philosophy  of  the 
judges.  It  has  already  been  pointed  out  that  tests 
of  varying  severity  have  been  applied  under  the  fel- 
low-servant rule  to  determine  who  shall  be  consid- 
ered fellow-servants. 

With  changes  in  the  organization  and  methods  of 
industry  the  inadequacy  of  the  philosophy  of  laissez 
faire  and  the  injustice  of  the  common  law  principles 
of  employers'  liability  became  increasingly  evident  and 
there  developed  a  desire  to  remove  some  of  the  limita- 
tions on  the  employee's  right  of  recovery.  That  this 
desire  manifested  itself  largely  in  the  form  of  statutes 
is  probably  due  to  the  fact  that  legislative  bodies  are 
more  responsive  to  public  opinion  than  is  the  bench, 
and  also  because  judges  are  loath  to  run  counter  to  a 
well-established  body  of  legal  doctrine.  It  was  nat- 

83  Dicey,  "Law  and  Opinion  in  England,"  p.  280. 


THE  LAW  OF  NEGLIGENCE  55 

ural  that  the  fellow-servant  rule,  which  gave  rise  to 
the  greatest  injustice,  should  first  be  attacked,  and  the 
early  "employers'  liability  acts"  had  as  their  main  pur- 
pose the  placing  of  an  injured  servant  in  the  same  le- 
gal position  as  a  stranger  if  the  injury  was  caused 
under  certain  circumstances.  These  laws  also  re- 
moved the  death  limitation  but  limited  the  amount 
wrhich  might  be  recovered  either  by  the  injured  serv- 
ant or  by  his  heirs.34  These  and  succeeding  statutes 
have  attempted  to  equalize  the  advantages  of  employer 
and  employee  and  have  put  into  effect  a  philosophy 
which  recognizes  that  individualism  means  exploita- 
tion and  that  the  state  must  lay  down  positive  rules 
to  secure  justice  between  master  and  servant. 

The  Federal  Employers'  Liability  Act  of  1908, 
modifying  all  of  the  old  doctrines  by  which  the  em- 
ployer sought  to  escape  liability,  is  in  marked  con- 
trast to  the  earlier  statutes  which  attempted  to  re- 
move only  the  most  evident  defects  of  the  common 
law. 

REFERENCES 

Burdick's  Law  of  Torts,  3d  ed.,  Banks  &  Co.,  Albany, 
N.  Y.  (1913),  Chap.  IV.  §§  3,  4,  Chap.  XV.  §§  1-4. 

Shearman  and  Redfield  on  the  Law  of  Negligence,  6th  ed. 
Edited  by  Robert  G.  Street,  Baker,  Voorhis,  &  Co., 
New  York  (1913).  Parts  I,  II,  &  VIII. 

Bailey  on  Personal  Injuries,  2d  ed.,  Callaghan  and  Co., 
Chicago  (1912). 

BOHLEN,  FRANCIS  H.  "Voluntary  Assumption  of  Risk," 
I,  II,  20  Harvard  Law  Review  14,  91  (1906). 

34  r/.  Mass.   Employers'  Liability  Act  of  1887. 


56  COMPENSATION  INSURANCE 

BURDICK,  FRANCIS  H.  "Is  Law  the  Expression  of  Class 
Selfishness?"  25  Harvard  Law  Review,  349  (1912). 

DICEY,  A.  V.  "Law  and  Opinion  in  England,"  Macmillan, 
London  (1905).  Pp.  279-283. 


CHAPTER  V 

CRITICISM  OF  THE  SYSTEM  OF  EMPLOYERS' 
LIABILITY 

The  system  of  employers'  liability  proceeds  on  the 
theory  that  the  economic  loss  occasioned  by  an  indus- 
trial accident  should  be  borne  by  the  person  injured 
unless  he  can  show  that  some  other  person  is  directly 
responsible,  through  a  negligent  act  or  omission,  for 
the  occurrence  of  the  accident.  If  such  personal  re- 
sponsibility can  be  proved  the  guilty  party  is  liable 
in  damages  which  are  supposed  to  compensate  for  the 
loss  sustained  because  of  the  injury.  This  does  not 
mean  that  the  employee  is  considered  to  have  been  at 
fault  in  the  event  that  he  is  unable  to  attach  liability 
to  another.  Many  accidents  arise  from  the  methods 
of  carrying  on  a  business,  responsibility  for  which 
must  be  assigned  to  conditions  rather  than  persons. 
The  concept  of  personal  fault  which  is  at  the  basis 
of  employers'  liability  prevents  recovery  for  the  re- 
sults of  accidents  of  this  nature  and  the  workman 
must  bear  the  loss  incurred.  All  of  which  is  but  one 
phase  of  the  general  philosophy  of  laissez  faire  which 
holds  that  men  should  bear  the  consequences  of  their 
own  conduct  and  of  the  normal  conditions  in  which 
they  find  themselves. 

Liability  on  the  part  of  an  employer  may  be  estab- 

57 


58  COMPENSATION  INSURANCE 

lished  only  by  means  of  a  suit  at  law.  The  courts,  in 
determining  the  existence  of  fault  as  a  basis  for  lia- 
bility, are  guided  by  the  rules  of  negligence  law  and 
by  the  various  statutes  which  have  been  passed  in  mod- 
ification of  these  rules.  It  is,  therefore,  to  be  borne 
in  mind  that,  in  order  to  collect  damages,  an  em- 
ployee must  prove  legal  liability,  which  may  or  may 
not  coincide  with  one's  ideas  of  moral  liability  and 
justice. 

That  dissatisfaction  with  the  operation  of  the  law 
of  negligence  in  its  extreme  form  has  been  widespread 
is  evident  from  the  universal  enactment  of  statutes  de- 
signed to  extend  the  liability  of  employers  and  to  fa- 
cilitate recovery  by  workmen.  Limitations  have  been 
removed,  responsibility  has  been  broadened,  and  a  new 
body  of  law  created.  But  even  the  continued  attempts 
of  law-makers  over  a  period  of  nearly  forty  years 
rfiave  failed  to  produce  a  system  of  employers'  liability 
which  satisfactorily  adjusts  the  distribution  of  eco- 
nomic loss.  Such  attempts,  where  they  have  not  been 
defeated  by  the  extremely  conservative  interpretation 
of  the  courts,  have  resulted  only  in  removing  some 
of  the  more  striking  defects  of  the  system. 

A  criticism  of  the  practical  operation  of  employers' 
liability  should  seek  to  determine  to  what  extent  it 
accomplishes  its  fundamental  purpose,  the  solution 
of  the  problem  created  by  industrial  accidents.  In 
so  far  as  that  purpose  is  not  completely  accomplished 
the  system  is  defective  and  it  should  be  corrected  or 
other  means  adopted  to  the  same  end.  The  employing 
and  employed  classes  as  well  as  society  at  large  are 
concerned  in  its  contribution. 


CRITICISM  OF  EMPLOYERS'  LIABILITY      59 

The  Employee^  Criticism. — i.  A  large  share  of  in- 
dustrial accidents  are  entirely  uncompensated  and  the 
economic  loss  resulting  from  them  must  be  borne  by 
the  workman  or  his  dependents.  Figures  collected 
by  the  New  York  Employers'  Liability  Commission 
show  that,  of  114  fatal  industrial  accidents  occurring 
in  Erie  County  during  the  years  1907  and  1908,  33.3% 
were  entirely  uncompensated ;  and  of  67  fatal  cases  in 
the  Borough  of  Manhattan  during  1908,  26.9%  were 
not  compensated.1  In  Wisconsin  no  compensation 
was  paid  in  72  out  of  a  total  of  306  non- fatal  cases,  or 

23-5%  2 

A  study  of  conditions  in  Pittsburgh  showed  that 
no  payment  of  compensation  was  made  in  59  out  of 
235  cases  of  married  men  killed  in  industry,  a  percent- 
age of  25. i.3 

Nine  insurance  companies  doing  business  in  New 
York  reported  that  payments  were  made  to  em- 
ployees under  policies  assuming  the  employers'  lia- 
bility risk  in  only  one  case  for  every  eight  notices 
of  accident.4  Investigations  in  other  states  have  shown 
similar  conditions  to  exist. 

2.  Where  compensation  is  obtained  it  bears  no  true 
relation  to  economic  need.  The  table  on  page  60  shows 
the  complete  results  of  the  Erie  County  study  men- 
tioned above,  the  amount  of  compensation  recovered 
being : 


1  Report  to  the  Legislature  of  the  State  of  N.  Y.,  1910,  p.  20. 

2  Reports  of  the  Bureau  of  Labor  and  Industrial  Statistics, 
V.   13,  P-  54- 

3  Eastman,  "Work  Accidents  and  the  Law,"  p.  121. 

4  Report  to  the  Legislature  of  the  State  of  N.  Y.,  1910,  p.  25. 


60  COMPENSATION  INSURANCE 

o  in  38  cases!   ,  •. 

-  81  out  of  103,  or  78.6%  of 

$100  or  less  mo  L 

^  &         .  closed  cases. 

$101    to   $500   in  34 

$501  to  $2000  in  14     " 

Over  $2000  in     8     " 

Suit  pending  in  1 1      " 


Total 114  cases 

Seventy-eight  and  six-tenths  per  cent  of  the  fam- 
ilies where  decisions  had  been  rendered  received  $500 
or  less  as  the  entire  compensation  to  pay  funeral  ex- 
penses and  replace  the  earnings  of  the  workman.  The 
Labor  Department  of  New  York  investigated  ten  cases 
in  which  accidents  had  left  the  workmen  in  a  totally 
helpless  condition  for  the  remainder  of  life;  in  one 
of  these  the  suit  was  still  pending  and,  in  the  other 
nine,  three  received  nothing,  while  none  of  the  six 
remaining  received  over  $500.  The  records  of  the 
Wayne  Circuit  Court  of  Michigan  show  that,  of  twen- 
ty-two men  partially  disabled  for  life,  twelve  received 
no  compensation,  while  the  remaining  ten  were  award- 
ed amounts  varying  from  $200  to  $5,75O.5  In  her 
study  of  accidents  in  the  Pittsburgh  district  Miss  East- 
man found  that  "for  the  death  of  53  per  cent  of  the 
married  men,  and  65  per  cent  of  the  single  men  con- 
tributing to  the  support  of  others,  no  compensation 
above  reasonable  funeral  expense  was  made ;  in  the  in- 
jury cases,  56  per  cent  of  the  married  men,  66  per 
cent  of  the  single  contributing  men,  and  69  per  cent  of 

6  Report  of  the  Employers'  Liability  and  Workmen's  Compen- 
sation Commission,  1911. 


CRITICISM  OF  EMPLOYERS'  LIABILITY      61 

the  non-contributing  men  received  nothing  to  make 
•up  for  lost  income."  6  After  an  extensive  comparison 
of  economic  loss  to  workmen  and  receipts  from  em- 
ployers the  New  York  Commission  says  that  their  fig- 
ures strengthen  the  conclusion  "that  the  bulk  of  the 
accident  loss  is  borne  by  the  injured  workmen  and 
their  families.  They  [the  figures]  emphasize  also  the 
fact  that  the  results  of  the  present  law  are  arbitrary 
and  unequal,  that  a  few  of  the  injured  get  large  ver- 
dicts while  many  get  nothing.  Thus,  in  the  temporary 
disability  cases  a  comparison  of  totals  shows  that  em- 
ployers paid  nearly  one-third  of  the  loss,  but  yet  in  44 
per  cent  of  these  cases  they  paid  nothing.  In  per- 
manent partial  disability  cases,  payments  from  em- 
ployers averaged  one-third  of  the  loss  until  return  to 
work,  and  yet  over  one-third  of  these  disabled  men 
received  nothing.  In  the  in  fatal  cases  compen- 
sation averages  17.1  per  cent  of  the  first  three 
years'  loss,  but  nearly  half  of  the  dependents  got  noth- 
ing." * 

Commenting  further,  the  same  body  says,  "From 
our  detailed  investigation,  borne  out  as  it  is  by  the 
results  of  similar  studies  in  states  where  the  same 
general  law  prevails,  and  strengthened  by  testimony 
given  before  us,  we  are  brought  to  the  conclusion 
that  under  our  employers'  liability  laws  a  large  pro- 
portion (over  50  per  cent)  of  the  workmen  injured 
by  accidents  of  employment  and  the  dependents  of 
those  killed  get  nothing  or  next  to  nothing,  and  that 

'"Work  Accidents  and  the  Law,"  p.  127. 

7  Report  tof  the  Legislature  of  the  State  of  New  York,  1910, 
P-  23. 


62  COMPENSATION  INSURANCE 

only  a  very  small  proportion  recover  an  amount  that 
is  in  any  way  commensurate  with  their  loss."  8 

3.  In  order  to  recover  damages  it  is  necessary  for 
the  plaintiff  to  sacrifice  a  considerable  portion  of  the 
gross  amount  in  lawyer's  fees  and  costs.  The  Labor 
Department  of  New  York  found  that  in  151  acci- 
dent cases,  97  of  which  were  settled  directly  between 
the  parties,  "the  total  amount  of  plaintiffs'  fees  and 
costs  amounted  to  22.7  per  cent  of  the  total  gross  re- 
ceipts from  employers."  The  contingent  fee  system, 
under  which  a  lawyer  agrees  to  prosecute  a  case  in 
return  for  a  percentage  of  whatever  damages  he  may 
recover,  is  a  large  factor  in  increasing  legal  costs. 
Agreements  of  this  type  are  common  in  employers'  lia- 
bility cases  since  the  workman  is  usually  unable  to 
employ  an  attorney  on  any  other  basis  and  since  "am- 
bulance chasers,"  the  crooks  of  the  legal  profession, 
actually  solicit  this  kind  of  business.9  In  New  York 
the  following  results  were  obtained  in  an  investigation 
of  51  cases.10 

Size  of  Fee  No.  of  Cases 

Less  than  25  per  cent  in 14 

25  per  cent  to  34.9  per  cent  in 16 

35  per  cent  to  49.9  per  cent  in 7 

50  per  cent  and  over 14 


Total 51 

8  Report  to  the  Legislature  of  the  State  of  New  York,  1910, 
p.  26. 

"The  workman  is,  of  course,  at  a  great  disadvantage  in  being 
obliged  usually  to  employ  an  inferior  attorney. 

10  Report  to  the  Legislature  of  the  State  of  New  York,  1910, 
p.  3i. 


CRITICISM  OF  EMPLOYERS'  LIABILITY      63 

And  these  conditions  are  in  no  way  peculiar  to  New 
York. 

4.  Compensation  is  frequently  received  only  after 
long  delay  spent  in  litigation.  The  courts  are  so  over- 
loaded with  work  that  delays  of  two  years  in  bring- 
ing cases  to  trial  are  not  uncommon  and  when  it  be- 
comes necessary  to  follow  a  case  through  a  succes- 
sion of  appeals  it  may  take  eight  years  or  more  be- 
fore a  final  verdict  is  reached.  During  all  this  time 
the  workman  or  his  dependents  are  receiving  no  com- 
pensation and  may  be  undergoing  additional  expense 
for  medical  treatment  or  court  costs. 

The  Employers  Criticism. — i.  The  employer  has 
been  forced  by  the  system  to  pay  out  large  sums  of 
money  for  the  defense  of  claims  and  in  satisfaction 
of  verdicts,  much  of  which  has  failed  to  reach  his 
injured  men.  If  he  employs  an  insurance  company 
to  fight  claims  a  half  or  more  of  his  premiums  goes  to 
pay  the  salaries  of  officers,  the  commissions  of  agents, 
and  the  expenses  of  conducting  the  insurance  business. 
If  he  maintains  a  claim  department  of  his  own  he  must 
employ  expert  lawyers,  bear  the  court  costs  in  liti- 
gated cases,  and  satisfy  claims  which  are  compromised 
or  in  which  an  adverse  verdict  is  rendered  by  the 
courts. 

2.  Friction  between  employer  and  employed  often 
arises  out  of  claims  for  damages  whether  or  not  they 
reach  the  stage  of  law-suits.  The  workman  feels  that 
he  should  get  compensation  for  injuries  incurred  in 
the  course  of  employment  while  the  employer  is  in- 
clined to  think  that  any  aid  he  may  give  is  a  matter 
of  generosity  rather  than  of  duty.  If  the  question 


64  COMPENSATION  INSURANCE 

comes  before  the  courts  the  friction  is  increased  and 
the  enforced  expenditure  creates  actual  antagonism. 
The  New  York  Commission  says:  'That  the  pres- 
ent law,  with  its  uncertain  and  uneven  chances,  pro- 
motes distrust  and  ill-will  between  employers  and  em- 
ployees to  a  serious  extent  we  are  convinced  from  the 
testimony  of  both.  In  our  public  hearings  and  in 
the  replies  received  to  our  inquiries  this  was  a  very 
frequent  complaint."11  That  this  situation  results 
in  lowered  efficiency  cannot  be  doubted. 

Society's  Criticism. — Since  the  aim  of  organized 
society  is  to  promote  the  best  interests  of  all  the  classes 
composing  it,  any  system  which  operates  to  the  disad- 
vantage of  a  class  is  to  some  extent  opposed  to  the 
purposes  of  society  itself.  Therefore  society  is  con- 
cerned with  the  criticisms  of  the  employer  and  of  the 
employee  and  should  seek  to  remove  the  conditions 
which  give  rise  to  them.12  But  there  are  other  de- 
fects which  do  not  concern  these  classes  so  intimately 
and  which  do  affect  society  at  large. 

I.  The  cost  of  hearing  negligence  cases  represents 
a  very  large  share  of  the  expense  of  maintaining  the 
courts.  Estimates  vary  in  assigning  anywhere  from 
one-fifth  to  two-thirds  of  the  time  of  the  courts  to  this 
form  of  litigation. 

2,.  Uncompensated  or  insufficiently  compensated  in- 
dustrial accidents  give  rise  to  economic  dependence 


11  Report  to  the  Legislature  of  the  State  of  New  York,  1910, 

P.  33- 

12  This  is  particularly  true  of  the  economic  waste  involved  in 
lawyer's  fees  and  the  maintenance  of  claim  organizations  which 
serve  no  constructive  purpose. 


CRITICISM  OF  EMPLOYERS'  LIABILITY      65 

and  destitution,  the  burden  of  which  is  transferred  to 
society  through  various  forms  of  charitable  relief. 

3.  Other  less  specific  evils  are  the  bad  moral  effect 
of  enforced  pauperization,  and  the  misrepresentation 
and  perjury  induced  by  the  desire  to  win  law-suits. 

Summary. — The  defects  of  the  system  have  been 
ably  summarized  as  follows: — 

"i.  It  is  wasteful: 

(a)  The  state  expends  a  large  amount  in  fruit- 
less litigation. 

(b)  Employers  spend  a  large  amount,  as  the  re- 
sult of  work-accidents,  only  a  small  part  of 
which  is  actually  paid  in  settlement  of  acci- 
dent claims. 

(c)  The  injured  employees  spend  nearly  half  of 
what  they  get  in  settlements  and  damages  to 
pay  the  costs  of  fighting  for  them. 

"2.  It  is  slow;  recovery  is  long  delayed,  while  the 
need  is  immediate. 

"3.  It  fosters  misunderstanding  and  bitterness  be- 
tween employer  and  employees. 

"4.  It  encourages  both  parties  to  dishonest  meth- 
ods." 13 

Other  Attempts  to  Solve  the  Accident  Problem. — 
Three  other  methods  of  solving  the  economic  problem 
of  industrial  accidents  have  been  tried ;  the  encourage- 
ment of  saving  by  the  workman,  industrial  accident 
insurance,  and  corporate  relief  and  pension  schemes. 
None  of  these  approaches  a  sufficient  solution.  Even 

"Eastman,  "Work  Accidents  and  the  Law,"  p.  206. 


66  COMPENSATION  INSURANCE 

where  a  workman  has  the  will  to  save,  his  earnings 
do  not  permit  an  adequate  accumulation,  and  if  they 
cease  at  an  early  age  the  difficulty  is  increased.  In- 
dustrial accident  insurance,  sold  to  workingmen  on 
the  weekly  or  monthly  payment  plan  is  bought  at  an 
excessive  cost,  and  rarely  returns  benefits  commen- 
surate with  loss  of  income.  The  relief  associations 
of  certain  corporations  afford  substantial  help,  but  they 
are  far  from  giving  adequate  compensation  and  ac- 
ceptance of  their  benefits  usually  involves  conditions 
highly  disadvantageous  to  the  employee.  Besides,  they 
are  not  always  safe  or  permanent. 

Conclusion. — Having  viewed  the  problem  arising 
from  industrial  accidents  and  the  failure  of  the  pres- 
ent system  of  employers'  liability  as  a  method  of  solu- 
tion, the  next  logical  step  is  to  seek  a  real  remedy. 
Can  this  be  found  in  an  amendment  of  the  present 
system  of  law,  in  the  extension  of  present  voluntary 
methods,  or  must  a  new  scheme  be  devised  and  sub- 
stituted for  the  old  one?  The  history  of  legislative- 
and  judicial  attempts  to  mold  the  common  law  into 
an  adequate  remedy  and  the  testimony  of  experts  rep- 
resenting all  interests  point  to  the  undeniable  fact  that 
the  system  of  employers'  liability  is  basically  wrong 
and  that  any  attempt  at  a  solution  which  does  not  re- 
move this  fundamentally  unsound  body  of  doctrine 
will  be  abortive.  The  same  is  true  of  the  various  vol- 
untary substitutes  which  have  been  tried.  Thirty-two 
of  our  states,14  appreciating  these  facts,  have  dis- 
carded the  old  common  law  doctrines  and  have  substi- 

"Dec.  i,  1916. 


CRITICISM  OF  EMPLOYERS'  LIABILITY      67 

tuted  the  more  just  and  practical  scheme  of  Work- 
men's Compensation. 

REFERENCES 

Report  to  the  Legislature  of  the  State  of  New  York  by 
the  Commission  ...  to  inquire  into  the  question  of 
employers'  liability  and  other  matters.  First  Report, 
March  19,  1910. 

RUBINOW,  I.  M.  "Social  Insurance,"  Holt,  New  York 
(1913).  Chap.  VI. 

EASTMAN,  CRYSTAL.  "Work  Accidents  and  the  Law," 
Charities  Publication  Committee,  New  York  (1910). 
Chap.  XIII. 

Report  of  the  Employer's  Liability  and  Workmen's  Com- 
pensation Commission.  Lansing,  Michigan  (1911). 

Reports  of  the  Bureau  of  Labor.  Madison,  Wisconsin 
(1907-8).  Vol.  XIII,  Parti. 


CHAPTER  VI 
THE  THEORY  OF  WORKMEN'S  COMPENSATION 

The  problem  of  compensating  workmen  for  loss  re- 
sulting from  industrial  accidents  is  essentially  social 
and  economic;  social,  because  it  is  a  direct  concern  of 
organized  society;  economic,  because  the  loss  must  be 
measured  in  terms  of  economic  welfare  and  because 
the  compensation  should  be  proportioned  to  the  loss 
so  measured.  It  should  be  remembered  that  the  legal 
problem  is  secondary  although  vital;  it  consists  in  ex- 
pressing, in  the  form  of  legislation,  the  judgment  of 
society.  Such  legislation  lays  down  rules  governing 
the  method  of  compensation  and  empowers  public  offi- 
cials to  administer  and  interpret  the  law,  but  it  is 
only  a  vehicle  for  the  accomplishment  of  socio-eco- 
nomic purposes. 

It  is  evident  that  the  methods  which  have  been  used 
in  the  past  and  which  are  still  in  use  in  sixteen  states 
have  become  increasingly  unsatisfactory.  The  opera- 
tion of  the  system  of  employers'  liability  has  resulted 
in  injustice  to  all  classes  and,  with  the  development 
of  industrial  conditions,  the  injustice  has  been  aggra- 
vated. Commencing  with  the  Industrial  Revolution 
in  the  early  nineteenth  century  the  conditions  under 
which  industry  has  been  carried  on  have  gradually 
changed  and  a  need  for  some  new  method  of  compen- 

68 


THEORY  OF  WORKMEN'S  COMPENSATION    69 

sation  has  been  created.  This  need  has  been  brought 
about  by  changes  iii  industrial  relations  and  by  the  in- 
troduction of  machinery.  Alongside  the  industrial  de- 
velopment there  has  grown  up  a  new  body  of  social 
thought  demanding  recognition  of  changed  conditions 
and  seeking  some  means  of  providing  adequate  and 
just  compensation  for  workmen  who  suffer  loss 
through  industrial  accidents. 

Changes  in  Industrial  Relations. — The  change  from 
the  domestic  system  of  industry  to  the  factory  system 
involved  a  complete  reorganization  of  the  personal 
factors  in  industry  and  created  those  labor  problems 
which  are  due  to  the  differentiation  of  employer  and 
employed.  It  is  natural  that  the  law  of  master  and 
servant  should  have  developed  pari  passu  with  the 
factory  system  and  with  the  increasing  opposition  of 
interests  of  the  two  great  social  classes.  The  feeling 
of  opposition  and  the  disputes  and  injustice  which 
have  arisen  from  it  were  inherent  in  the  growth  of  a 
new  method  of  conducting  business,  one  in  which  the 
principals  were  not  properly  orientated.  The  change 
in  industrial  relations  evolved  in  three  different  as- 
pects : 

i.  Under  the  domestic  system  all  work  was  done  on 
a  personal  basis,  the  workman  was  a  member  of  his 
employer's  family  and  the  employer  was  no  more 
than  a  highly  developed  workman.  It  was  quite  pos- 
sible for  any  artisan,  having  passed  through  the  stages 
of  apprentice  and  journeyman,  to  become  a  master 
himself.  Socially  all  were  on  the  same  level  and  per- 
sonal and  industrial  interests  were  mutual.  In  case 

of  injury  and  sickness  the  master  was  expected  to  care 
6 


70  COMPENSATION  INSURANCE 

for  the  members  alike  of  his  industrial  and  of  his  fam- 
ily group.  But  the  factory  system  demanded  capital, 
usually  more  than  any  one  man  was  prepared  to  fur- 
nish, and  the  modern  corporation  was  created  to  sat- 
isfy the  demand.  The  corporation  consists  of  a  group 
of  men  who  furnish  capital  and  whose  chief  interest 
is  in  the  financial  side  of  a  business,  the  actual  carry- 
ing on  of  technical  processes  usually  being  entrusted 
to  a  hired  manager  who,  in  turn,  in  a  large  undertak- 
ing, delegates  his  functions  to  assistant  managers,  su- 
perintendents, and  foremen.  Hence  the  personal  ele- 
ment in  industrial  relations  largely  disappears — even 
personal  acquaintance  between  master  and  man  van- 
ishes. With  the  personal  element  gone  the  mutual  in- 
terest which  prompted  aid  and  care  is  also  lost.  The 
employer  now  looks  on  his  business  as  a  means  of  ac- 
quiring wealth  and  power  and  the  workman  seeks  to 
secure  the  largest  possible  return  from  a  minimum 
amount  of  labor.  The  manager's  remuneration  is 
based  on  his  efficiency  in  returning  profits  to  the  em- 
ployer and  his  interests  naturally  lead  him  to  con- 
duct the  business  at  the  lowest  possible  cost.  Aid 
in  any  appreciable  amount  has,  until  very  recently  at 
least,  usually  been  denied  to  injured  workmen  and 
their  families  unless  forced  by  a  decree  of  the  court. 
Compensation  for  industrial  accidents  has  been  re- 
garded as  an  unwarranted  expense  totally  opposed  to 
the  interests  of  the  employer,  who  was  not  conscious 
of  any  direct  personal  relationship  with  his  employee. 
2.  Industrial  relations  have  become  not  only  imper- 
sonal but  highly  complicated.  Division  of  labor  has 
necessitated  the  creation  of  many  departments  in  an 


THEORY  OF  WORKMEN'S  COMPENSATION    71 

industry,  each  employing  a  group  of  laborers  and  each 
contributing  a  share  of  the  work  necessary  to  manu- 
facture a  finished  product.  The  heads  of  departments 
are  responsible  to  the  superintendent  of  the  plant,  the 
superintendent  to  the  manager,  and  the  manager  to  the 
board  of  directors,  which  represents  the  stockholders. 
Besides  those  concerned  directly  with  the  finished 
product  of  the  industry,  there  are  other  groups  which 
have  a  relation  to  the  plant  as  a  whole,  repair  men, 
construction  gangs,  and  men  concerned  with  motive 
power  and  its  transmission. 

Such  conditions  are  responsible  in  a  high  degree  for 
rendering  unsatisfactory  a  system  of  compensation 
based  on  employers'  liability.  Employers'  liability  is 
governed  by  the  principle  of  personal  fault  and  in 
order  to  establish  the  existence  of  fault  it  is  necessary 
to  prove  that  an  injury  was  caused  wholly  and  directly 
by  a  particular  person.  The  complicated  relationships 
of  the  modern  factory  system  have  rendered  this  prac- 
tically impossible,  since  the  cause  of  almost  every  acci- 
dent is  a  complex  of  the  actions  or  neglect  of  a  great 
number  of  persons,  principals  and  subordinates. 

3.  In  order  to  bring  productive  organization  to  its 
highest  efficiency  it  has  been  found  necessary  to  in- 
tegrate and  consolidate  industry  and  to  arrange  the 
units  of  a  large  corporation  so  that  each  will  contribute 
its  utmost  to  the  final  product.  In  this  process  or- 
ganization as  such  has  come  to  mean  more  to  the  suc- 
cess of  an  undertaking  than  any  other  feature.  The 
importance  of  organization  which  has  carried  with  it 
definite  rules  and  plans  has  meant  the  still  further  re- 
pression of  the  individual  and  has  minimized  his  con- 


72  COMPENSATION  INSURANCE 

tribution  to  the  final  result.  The  individual  has  been 
lost  in  the  mass  and  the  removal  of  a  workman  and 
substitution  of  another  is  now  a  less  significant  occur- 
rence than  formerly. 

Change  from  Handicraft  to  Machinery. — The  prime 
factor  in  the  establishment  of  the  present  industrial 
system  was  the  introduction  of  machinery  and  the  sub- 
stitution of  mechanical  power  for  manual  labor.  This 
has  had  two  general  effects  which  bear  directly  on  the 
problem  of  industrial  accidents  : 

1.  The  risk  of  accident  has  become  greater;  posi- 
tively, throtfgh  the  introduction  of  dangerous  machin- 
ery and  increased  speed  of  operation,  and  negatively, 
through  the  lowered  skill  of  the  workman  and  the  em- 
ployment  of   untrained   immigrant   labor.      The   im- 
provement of  methods  in  the  steel  industry  and  the 
progress  of   invention  have  constantly  enlarged  and 
complicated  machines,  and  every  enlargement  and  com- 
plication has  increased  the   danger  to  the  operator. 
Superior  organizations,  improvements  in  mechanical 
arts,  and  the  production  of  finer  grades  of  construc- 
tion materials  have  increased  the  speed  at  which  ma- 
chines have  been  operated  and  have  rendered  less  de- 
liberate the  movements  of  attendants.  The  invention  of 
machines  to  perform  delicate  technical  processes  for- 
merly accomplished  only  through  hand  work  has  made 
possible  the  employment  of  a  lower  grade  of  labor- 
ers, at  once  less  able  and  less  careful.     The  inability 
of  immigrant  laborers  to  understand  the  English  lan- 
guage has  been  another  factor  in  increasing  the  prob- 
ability of  accident  occurrence. 

2.  The  use  of  machinery  to  perform  the  greater 


THEORY  OF  WORKMEN'S  COMPENSATION    73 

part  of  work  once  done  by  hand  has  contributed  with 
the  development  of  organization  to  the  repression  of 
the  individual.'  The  workman  in  many  industries  acts 
merely  as  a  feeder  and  attendant  to  the  machine,  the 
mechanism  of  which  now  accomplishes  the  larger  and 
more  technical  part  of  the  work.  Good  machines  are 
more  important  than  skilled  workmen  and  they  have 
absorbed  much  of  the  attention  formerly  given  to  se- 
lecting and  caring  for  individual  employees. 

The  Growth  of  Cities. — The  growth  of  cities  with 
large  manufacturing  populations  should  be  noted  in 
connection  with  industrial  accidents,  for  it  has  aggra- 
vated the  severity  of  the  problem.  Wages  in  cities 
seldom  exceed  the  minimum  necessary  to  sustain  life, 
and  preclude  effective  help  being  given  an  injured 
workman  by  others  of  his  class,  a  condition  obtaining 
to  a  much  less  degree  in  the  country.  If  a  man  is  not 
totally  disabled  he  is  usually  able  to  scrape  together 
a  bare  living  himself  in  the  country  districts,  but  this 
is  not  true  of  the  congested  areas  of  large  cities. 

New  Social  Ideas. — Changes  in  industrial  condi- 
tions have  made  old  theories  and  methods  of  accident 
compensation  largely  nugatory  in  actual  practice;  at 
the  same  time  new  social  ideas  have  gained  currency 
which  have  resulted  in  an  almost  complete  reversal 
of  attitude  on  the  part  of  economists,  legislators,  and 
even  employers : 

i.  The  generally  accepted  theory  of  the  limitations 
on  governmental  action  has  undergone  a  considerable 
development.  It  is  still  agreed  that  the  government 
should  undertake  only  those  tasks  which  can  be  more 
effectively  .accomplished  by  its  agency  and  can  not  well 


74  COMPENSATION  INSURANCE 

be  left  to  individual  initiative  and  responsibility.  For 
long  this  was  interpreted  to  cover  only  those  affairs 
with  which  the  government  must  concern  itself  in  or- 
der to  exist,  such  as  the  maintenance  of  order,  the 
dispensation  of  justice  and  the  carrying  on  of  essen- 
tial public  works.  Governmental  interference  with 
the  affairs  of  the  individual  was  not  to  extend  beyond 
an  unavoidable  minimum.  But  now  its  function  is  of 
a  more  constructive  nature,  the  actions  of  the  individ- 
ual are  regulated  to  the  end  that  greater  social  wel- 
fare may  obtain  and  enterprises  are  undertaken  by 
government  which  might  be  carried  on,  but  less  effec- 
tively, by  individual  initiative. 

2.  The  development  of  the  concept  of  liberty  has 
been  consonant  with  the  change  in  governmental  the- 
ory.    The  older  and  negative  concept  defined  liberty 
as  freedom  from  interference,  the  newer  positive  view 
recognizes  that  restraint  and  regulation  may  result  in 
greater  real  freedom  and  wider  privileges.     In  trans- 
portation,   for   example,   regulation   of   common   car- 
riers has  thoroughly  substantiated  this  principle. 

3.  The  elimination  of  waste  through  conservation 
of  resources  has  its  application  to  industrial  accidents, 
for  every  workman  lost  through  death  or  disability 
lowers  the  efficiency  of  the  working  force  as  a  whole. 
Society  has  invested  a  certain  portion  of  its  resources 
in  bringing  men  to  the  working  age  and  social  econ- 
omy demands  the  fullest  possible  use  of  the  productive 
capacity  of  each  working  unit. 

4.  In  recent  years  there  has  been   a  considerably 
greater  interest  in  the  welfare  of  all  classes  from  a 
humane  point  of  view.     The  leisure  class  lias  to  some 


THEORY  OF  WORKMEN'S  COMPENSATION     75 

extent  justified  itself  through  the  activities  of  some 
of  its  members  who  have  become  interested  in  social 
betterment  and  who  have  drawn  attention  to  the  suf- 
fering caused  by  industrial  accidents.  They  have  la- 
bored to  improve  industrial  conditions  by  eliminating 
causes  and  securing  remedial  legislation. 

5.  The  working  class  itself  has  done  much  toward 
accelerating  investigation  and  improvement  of  condi- 
tions. It  has  organized  and  become  educated  both 
through  its  own  efforts  and  through  the  aid  of  philan- 
thropists and  social  scientists  so  that  expressions  of 
opinion  on  its  part  are  something  more  than  a  forlorn 
cry  for  help.  Education  and  organization  carry  with 
them  a  demand  for  recognition  and  a  new  kind  of 
treatment,  a  demand  for  justice  rather  than  mercy. 

WORKMEN'S  COMPENSATION 

The  application  of  modern  social  thought  to  the  in- 
dustrial accident  problem  and  to  the  unsatisfactory 
conditions  under  the  system  of|pmployers'  liability  re- 
sulted in  the  almost  universal  conviction  that  a  radical 
change  was  necessary,  that  there  must  be  nothing  less 
than  the  elimination  of  the  old  system  and  the  substi- 
tution of  a  basically  new  scheme.  A  complicating  fea- 
ture in  the  solution  of  the  difficulty  lay  in  the  dual  na- 
ture of  the  workman,  who  is  both  the  means  and  the 
end  of  production.  As  a  producer  he  is  expected  to 
make  the  greatest  possible  use  of  his  productive  ca- 
pacity, as  a  consumer  he  is  entitled  to  the  greatest 
possible  use  of  the  product  consistent  with  like  enjoy- 
ment on  the  part  of  other  members  of  society.  The 


76  COMPENSATION  INSURANCE 

balance  must  be  struck  in  such  a  way  as  to  reconcile 
these  apparently  inharmonious  viewpoints. 

The  industrial  world  has  quite  generally  agreed  on 
the  substitution  of  the  principle  of  workmen's  compen- 
sation for  that  of  employers'  liability  and  practically 
every  European  country  and  the  majority  of  the  states 
have  adopted  laws  which,  to  a  greater  or  less  degree, 
apply  the  new  principle. 

Definition  of  Workmen's  Compensation. — Work- 
men's Compensation  is  the  indemnification  of  a  work- 
man or  his  dependents  by  an  industry  for  any  eco- 
nomic loss  due  to  injuries  suffered  because  of  his  con- 
nection with  the  particular  industry.1  The  burden  of 
cost  of  compensation  is  usually  placed  upon  the  em- 
ployer as  the  representative  of  the  industry. 

Basis  of  Workmen's  Compensation. — Workmen's 
Compensation  is  variously  defended  on  grounds  of 
expediency  and  justice.  From  either  viewpoint  a 
strong  case  may  be  established;  when  both  are  con- 
sidered the  argument  is  irresistible.  The  leading 
points  urged  in  justification  of  the  principle  fall  under 
four  heads : 

i.  Industry  is  responsible  for  the  occurrence  of  a 
large  majority  of  industrial  accidents;2  therefore,  in- 
dustry should  be  compelled  to  bear  any  loss  which  may 
result.3  The  provable  majority  is  so  large  and  the  de- 

1  In  actual  practice,  of  course,  the  working  class  is  not  indem- 
nified for  the  entire  loss.    Practical  considerations  make  it  neces- 
sary to  modify  the  ideal  in  some  degree. 

2  V.  supra,  pp.  10,  n. 

8  The  principal  argument  in  support  of  workmen's  compensa- 
tion is  based  on  the  principle  of  fault  but  the  old  narrow  inter- 
pretation recognizing  only  personal  fault  has  been  superseded. 


THEORY  OF  WORKMEN'S  COMPENSATION    77 

termination  of  fault  in  the  remaining  cases  is  so  diffi- 
cult that  expediency  demands  the  extension  of  the 
principle  to  all  accidents.  Further,  an  industry  which 
is  not  able  to  bear  the  loss  occasioned  by  its  accidents 
and  which  exists  only  by  forcing  others  to  bear  the 
loss  is  parasitic  and  its  expenses  of  production  are  not 
a  true  measure  of  cost. 

2.  Any  workable  scheme  of  compensation  necessa- 
rily involves  medical  and  surgical  care  of  the  injured 
and  such  care  results  in  a  net  gain  to  individual  indus- 
tries and  to  society.     Discarding  of  injured  workmen 
is  no  more  justifiable  than  a  refusal  to  repair  damaged 
machinery. 

3.  Society  has  accepted  the  idea  that  the  needy  should 
be  cared  for  in  all  possible  cases.     Workmen's  com- 
pensation is  an  application  of  this  idea  to  a  specific 
problem.4 

4.  The     provision     in     workmen's     compensation 
laws  that  an  industry  shall  bear  the  burden  of  cost 
of  its  accidents  does  not  mean  that  the  burden  will  be 
ultimately  borne  by  the  employer  as  such.     It  does 
mean  that  the  expense  of  producing  any  particular  ar- 
ticle will  more  accurately  represent  its  real  cost  and 
that  the  selling  price  will  be  fixed  accordingly.     The 
loss  from  industrial  accidents  will  be  borne  by  the  con- 
sumer of  the  commodity  the  production  of  which  has 

4  It  should  be  recognized  that  compensation  according  to  need  is 
not  justified  by  the  argument  that  the  industry  is  responsible  for 
economic  loss.  For  example,  industry  is  responsible  for  the  cut- 
ting off  of  a  workman's  wages  through  accidental  death  but  is 
not  responsible  in  proportion  to  the  size  of  the  man's  family. 
Compensation  for  dependents  in  proportion  to  their  number  can 
be  defended  only  on  grounds  of  expediency. 


78  COMPENSATION  INSURANCE 

occasioned  it.  If  the  inclusion  of  this  item  in  the  cost 
of  production  makes  necessary  such  an  increase  that 
the  selling  price  becomes  prohibitive,  it  is  proved  that 
the  continued  existence  of  the  industry  is  justified  only 
on  grounds  which  would  warrant  governmental  aid. 

Conclusion. — Workmen's  compensation  is  only  one 
aspect  of  the  gradual  systematizing  of  human  affairs. 
In  private  business  cost  accounting  has  succeeded  in 
allocating  many  expenses  formerly  regarded  as  gen- 
eral and  incapable  of  being  charged  to  specific  ac- 
counts. By  this  process  the  cost  of  conducting  each 
separate  department  of  a  business  becomes  known. 
Likewise  the  capacity  of  each  department  to  produce 
income  is  more  accurately  known  and  its  worth  is 
computed  by  a  comparison  of  income  and  expense. 

So  organized  society  may  be  regarded  as  a  huge 
business  of  which  the  various  industries  are  depart- 
ments. A  comparison  of  the  social  cost  of  maintain- 
ing an  industry  with  the  return  in  terms  of  social  wel- 
fare should  be  made  to  determine  its  net  worth,  bear- 
ing in  mind  that  the  apparent  costs  and  returns  in 
terms  of  money  are  not  a  final  measure  of  either  side 
of  the  account.  The  enactment  and  operation  of  work- 
men's compensation  laws  enable  a  more  accurate  esti- 
mate of  the  cost  of  carrying  on  industry  and  are  an  aid 
to  a  more  equitable  judgment  of  its  net  social  worth. 

REFERENCES 

RUBINOW,  I.  M.  "Social  Insurance."  Holt  &  Co.,  New 
York  (1913).  Chapters  I,  VII,  and  XXIX. 

SEAGER,  H.  R.  "Social  Insurance."  Macmillan,  New 
York  (1910).  Chapters  I,  II,  and  III. 


CHAPTER  VII 

HISTORICAL   DEVELOPMENT   OF  WORKMEN'S   COM- 
PENSATION IN  FOREIGN  COUNTRIES 

Workmen's  compensation,  while  new  to  the  United 
States,  has  been  long  established  in  European  coun- 
tries and  in  the  British  colonies.  More  recently  it  has 
been  adopted  in  Japan  and  in  certain  South  Ameri- 
can countries  and,  at  the  end  of  1916,  forty-nine 
foreign  governments  had  enacted  compensation  laws. 
These  laws  differ  in  scope  and  method  but  they  are  all 
based  on  the  principle  of  providing  indemnity  for  in- 
jury regardless  of  personal  fault  and  are  the  result  of 
the  development  of  modern  industry  and  ideas  and  of 
a  complete  dissatisfaction  with  the  system  of  employ- 
ers' liability. 

The  germs  of  the  present  compensation  system  ex- 
isted over  a  century  ago  in  the  mining  industries  of 
Austria  and  Germany  where  the  first  attempts  were 
made  to  provide  for  accident  relief.  In  these  coun- 
tries as  well  as  in  others  "liability  laws"  were  enacted 
which  made  less  difficult  the  securing  of  indemnity  but 
which  continued  to  recognize  the  fundamental  idea  of 
personal  negligence  as  a  cause  of  action.  Such  laws 
expressed  a  desire  to  correct  existing  unsatisfactory 
conditions  combined  with  unwillingness  to  adopt  an 
entirely  new  and  revolutionary  principle.  Conviction 

79 


80  COMPENSATION  INSURANCE 

of  the  necessity  of  radical  treatment  becoming  nearly 
universal,  it  has  been  expressed  by  the  gradual  adop- 
tion and  extension  of  workmen's  compensation.  Each 
country  passed  through  much  the  same  stages  of  de- 
velopment before  making  the  final  step  and  a  study  of 
the  growth  of  the  new  idea  reveals  a  repetition  of 
arguments  pro  and  con,  the  same  clash  of  interests, 
and  at  last  the  general  agreement  on  the  wisdom  of 
shifting  the  burden  of  industrial  accidents  from  the 
employee  to  the  industry. 

The  following  table  shows  the  dates  of  enactment 
of  compensation  laws  in  foreign  countries : 1 

DATES  OF  ENACTMENT  OF  FOREIGN  COMPENSATION  LAWS 

Date  of  Enactment     „  Date  of  Enactment 

Country  P      .   .     ,  ,  Country 

of  original  law  of  original  law 

Germany 1884  Greece  (mining,  quar- 

Austria    1887       rying,  metallurgy, 

Norway 1894       etc.,  only)   1901 

Finland    1895   Sweden    1901 

Great  Britain 1897  Western  Australia  .  .  1902 

Denmark 1898  Luxemburg 1902 

Italy 1898  British  Columbia  . . .  1902 

France 1898  Russia   1903 

Spain   1900  Belgium 1903 

New  Zealand 1900  Cape  of  Good  Hope.  1905 

South  Australia  ....  1900  Queensland 1905 

Netherlands    1901   Venezuela   (mining 

only)    1906 

1  Based  on  a  table  in  Bulletin  No.  126  of  the  U.  S.  Bureau  of 
Labor  Statistics.  The  law  enacted  in  1914  by  the  Union  of  South 
Africa  superseded  the  older  laws  of  the  Cape  of  Good  Hope  and 
of  the  Transvaal. 


HISTORICAL  DEVELOPMENT  81 

Date  of  Enactment     „  Date  of  Enactment 

C°Untry  of  original  law          ^°Untry          of  original  law 

Mexico — Nuevo  Leon  1906  Montenegro    1911 

Hungary 1907  Japan 191 1 

Transvaal    1907   San  Salvador 1911 

Newfoundland   1908   Switzerland    1912 

Alberta    1908  Roumania   1912 

Bulgaria    1908  Portugal    1913 

Quebec  1909  Ontario   1914 

Manitoba 1910  Union  of  South 

Nova  Scotia 1910       Africa   1914 

Liechtenstein    1910  Argentina   1915 

Servia    1910  Colombia , .  1915 

New  South  Wales..  1910  Victoria 1915 

Tasmania    1911   Cuba    1916 

Peru 1911   Chile    1916 

Early  laws  were  frequently  restricted  in  scope  and 
amendments  have  been  added  in  most  cases  which 
bring  a  large  proportion  of  the  working  population  un- 
der their  provisions.  Many  changes  have  also  been 
required  as  a  result  of  experience  and  in  some  cases 
complete  revisions  of  the  laws  have  been  made. 

There  is  a  tendency  in  Europe,  particularly  in  the 
more  advanced  countries,  to  look  upon  workmen's 
compensation  as  merely  a  part  of  a  broad  scheme  of 
social  insurance,  including  also  sickness,  invalidity, 
unemployment,  and  life  insurance,  old-age  pensions, 
maternity  benefits,  etc.  It  is  probable  that,  at  some 
time  in  the  future,  each  country  will  have  a  complete 
insurance  code  embodying  provisions  for  these  several 
risks  and  treating  them  as  varying  aspects  of  a  single 
great  problem  rather  than  as  isolated  phenomena. 


82  COMPENSATION  INSURANCE 

Germany  and  Great  Britain  have  already  gone  far  in 
this  direction,  the  former  with  the  Imperial  Insur- 
ance Ordinance,  and  the  latter  with  the  National  In- 
surance Act,  both  enacted  in  1911. 

A  knowledge  of  the  development  of  workmen's  com- 
pensation in  these  two  countries  is  especially  helpful 
to  the  American  student  since  the  idea  originated  in 
Germany  and  has  reached  its  highest  development 
there,  and  since  the  institutions  and  industrial  develop- 
ment of  Great  Britain  most  closely  resemble  our  own. 
The  following  brief  historical  review  is  intended  to 
serve  as  an  introduction  to  the  history  and  more  de- 
tailed study  of  compensation  in  the  United  States. 

GERMANY 

Early  Laws.— Like  other  countries,  Germany 
passed  through  a  long  period  of  preparatory  liability 
legislation  before  squarely  adopting  workmen's  com- 
pensation. "Very  early  the  Prussian  laws  recognized 
the  obligation  of  the  master  to  care  for  his  servant 
during  disability.  This  obligation  was  implied  in  the 
labor  contract  and  the  master  could  be  compelled  to 
pay  for  medical  attention  to  his  servant.  The  em- 
ployer was  also  held  responsible  for  accidents  to  serv- 
ants in  his  employment  due  to  his  negligence,  and  was 
bound  to  care  for  the  injured  until  restored.  Similar 
laws  protected  the  crews  of  vessels.  In  case  of  acci- 
dent during  the  voyage,  the  master  was  liable  for  med- 
ical attendance,  as  well  as  for  the  expense  of  the  voy- 
age home.  This  applied  even  though  the  disability 
of  the  sailor  were  from  sickness.  In  case  of  his  death 


.HISTORICAL  DEVELOPMENT  83 

while  on  a  cruise,  provision  was  made  fop  the  support 
of  his  dependents  by  the  employer."  2 

The  first  Prussian  statute  requiring  the  payment  of 
indemnity  for  industrial  accidents  was  that  of  Novem- 
ber 3,  1838,  which  made  railroad  companies  liable 
for  accidents  alike  to  employees  and  to  passengers. 
The  companies  could  escape  liability  only  by  proving 
that  the  accident  had  occurred  through  the  negligence 
of  the  person  injured  or  killed  or  through  an  "Act  of 
God." 

Laws  were  passed  in  1845,  Z849,  and  1854  to  en- 
courage the  formation  of  organizations  of  working- 
men  for  the  purpose  of  accident  and  sickness  relief. 
The  last  of  these  laws  required  that  employees  in 
certain  trades  should  join  trade  guilds  to  which  em- 
ployers were  compelled  to  contribute  one-half  of  the 
management  cost. 

Liability  Act  of  1871. — After  the  establishment  of 
the  German  Empire  in  1870  the  problem  of  industrial 
accidents  early  engaged  the  attention  of  the  govern- 
ment and  the  liability  act  of  June  7,  1871,  was  passed. 
This  act  extended  the  railroad  act  of  1838  over  the 
empire  and  in  addition  made  the  employer  liable  for 
accidents  occurring  in  a  mine,  quarry,  pit,  or  factory, 
if  the  injured  workman  or  his  survivors  could  prove 
negligence  on  the  part  of  a  vice-principal. 

Experience  under  the  liability  act  was  by  no  means 
satisfactory.  The  burden  of  proof  was  still  on  the 
employee  and  the  law  did  not  affect  accidents  due 
to  the  negligence  of  a  fellow-employee  nor  those  due 

2  Frankel  and  Dawson,  "Workingmen's  Insurance  in  Europe," 
p.  91. 


84  COMPENSATION  INSURANCE 

to  the  inherent  risk  of  the  employment.  Employers' 
liability  insurance  became  common,  making  still  more 
difficult  the  recovery  of  damages,  and  frequent  law 
suits  did  much  to  embitter  the  relations  of  employers 
and  employees.  An  official  investigation  disclosed 
conditions  similar  to  those  which  have  already  been 
described  as  incident  to  the  operation  of  employers' 
liability  in  the  United  States. 

Workmen's  Compensation. — As  a  result  of  the 
growing  dissatisfaction  a  movement  for  compulsory 
compensation  gained  rapid  headway.  The  Socialists, 
under  the  leadership  of  Dr.  Schaeffle,  were  first  to 
urge  the  plan,  which  was  supported  by  many  of  the 
economists  and  by  most  of  the  people.  Bismarck,  who 
had  originally  opposed  the  idea,  finally  adopted  it  with 
the  purpose  both  of  taking  from  the  socialists  some 
of  their  ammunition  and  of  convincing  the  people  of 
the  beneficence  of  the  State  as  it  then  existed. 

The  first  bill  was  introduced  in  the  Reichstag  on 
March  8,  1881,  and  provided  for  compulsory  insur- 
ance against  economic  loss  from  industrial  accidents 
in  mines,  factories,  etc.  Insurance  was  to  be  carried 
in  a  federal  insurance  corporation  or  in  mutual  asso- 
ciations of  employers,  its  cost  to  be  defrayed  by  con- 
tributions of  employers  and  employees  and  by  a  sub- 
sidy from  the  state.  The  Reichstag  was  in  sympathy 
with  the  compulsory  features  of  the  bill  but  proposed 
to  substitute  separate  insurance  carriers  in  each  king- 
dom for  the  single  imperial  corporation  and  refused 
a  state  subsidy.  These  changes  were  not  satisfactory 
to  the  government  and  the  bill  was  withdrawn. 

Before  another  bill  was  introduced  Emperor  Wil- 


HISTORICAL  DEVELOPMENT  85 

liam  sent  his  famous  message  to  the  Reichstag  urg- 
ing a  comprehensive  scheme  of  social  insurance.  As 
the  first  and  as  one  of  the  most  liberal  of  official 
pronouncements  on  the  subject  it  deserves  quota- 
tion at  considerable  length.  The  Emperor  said  in 
part: 

We  consider  it  Our  Imperial  duty  to  impress  upon 
the  Reichstag  the  necessity  of  furthering  the  welfare  of 
the  working  people.  We  should  review  with  increased 
satisfaction  the  manifold  successes  with  which  The  Lord 
has  blessed  Our  reign,  could  We  carry  with  Us  to  the 
grave  the  consciousness  of  leaving  Our  country  an  addi- 
tional and  lasting  assurance  of  internal  peace,  and  the 
conviction  that  We  have  rendered  the  needy  that  assist- 
ance to  which  they  are  justly  entitled.  Our  efforts  in 
this  direction  are  certain  of  the  approval  of  all  the  Fed- 
erate Governments,  and  We  confidently  rely  on  the  sup- 
port of  the  Reichstag,  without  distinction  of  parties. 
In  order  to  realize  these  views,  a  Bill  for  the  Insurance 
of  Wrorkmen  against  Industrial  Accidents  will  first  of  all 
be  laid  before  you;  after  which  a  supplementary  meas- 
ure will  be  submitted,  providing  for  a  general  organiza- 
tion of  industrial  Sick  Relief  Insurance.  Likewise,  those 
who  are  disabled  in  consequence  of  Old  Age  or  Invalidity 
possess  a  well-founded  claim  to  more  ample  relief  on 
the  part  of  the  State  than  they  have  hitherto  enjoyed. 
To  devise  the  fittest  ways  and  means  for  making  such 
provision,  however  difficult,  is  one  of  the  highest  obliga- 
tions of  every  community,  based  on  the  moral  principles 
of  Christianity.  A  more  intimate  acquaintance  with  the 
actual  capabilities  of  the  people,  and  a  mode  of  turning 
these  to  account  in  corporate  associations,  under  the 
patronage  and  with  the  aid  of  the  State,  will,  We  trust, 


86  COMPENSATION  INSURANCE 

develop  a  scheme  to  solve  which  the  State  alone  would 
prove  unequal. 

Following  this  message  of  November  17,  1881,  a 
new  bill  was  brought  forward  by  the  government  on 
May  8,  1882,  which  made  provision  for  sickness  as 
well  as  for  accidents.  The  sickness  insurance  was  to 
be  paid  for  by  the  workmen  with  assistance  from  em- 
ployers while  the  burden  of  cost  of  insurance  against 
accidents  was  to  be  borne  by  the  employers  with  a  sub- 
sidy from  the  state.  The  first  thirteen  weeks  of  dis- 
ability from  accidents  was  to  be  compensated  from  the 
sickness  insurance  funds.  Mutual  associations  of  em- 
ployers organized  by  trades  were  to  administer  the 
accident  compensation  and  manage  the  accident  funds. 
So  much  time  was  occupied  in  considering  the  propos- 
als for  sickness  insurance  that  those  for  accident  in- 
surance were  not  reached  during  this  session.  The 
sickness  insurance  bill  became  law  on  June  15,  1883, 
going  into  effect  December  i,  1884,  and  thus  provid- 
ing for  the  first  thirteen  weeks  of  disability  from  ac- 
cidents. 

A  third  bill  providing  workmen's  compensation  was 
introduced  on  March  6,  1884,  which,  on  account  of 
the  general  opposition  of  all  parties  in  the  Reichstag, 
made  no  provision  for  a  state  subsidy.  Its  other  main 
features  were  the  same  as  those  of  the  second  bill  and 
it  was  passed  on  July  6,  1884,  taking  effect  on  Octo- 
ber i,  1885.  The  general  principles  embodied  in  this 
law  are  still  the  foundation  of  workmen's  compen- 
sation in  Germany  and  it  may  be  regarded  as  the  par- 
ent of  all  such  legislation  in  other  countries. 


HISTORICAL  DEVELOPMENT  87 

Many  important  industries  were  excluded  from  the 
operation  of  the  first  act  but  subsequent  legislation 
has  extended  the  scope  of  compensation  so  that  now 
practically  every  industry  is  covered.3  All  provisions 
for  compensation  have  been  brought  together  in  a  sin- 
gle code  by  the  Imperial  Insurance  Ordinance  of  1911. 

Provisions  of  the  Present  Law. — In  case  of  total 
inability  to  work  resulting  directly  or  indirectly  from 
his  occupation  the  injured  workman  receives  payments 
from  the  date  of  the  injury  equal  to  sixty-six  and  two- 
thirds  per  cent  of  his  former,  earnings,  and  a  propor- 
tionate amount  if  the  disability  is  partial.4  Compen- 
sation will  not  be  paid  if  the  injury  was  intentionally 
self-inflicted  and  may  be  refused  altogether  or  par- 
tially if  caused  by  the  employee's  criminal  act. 

Varying  pensions,  subject  to  a  maximum  of  sixty 
per  cent  of  wages,  are  paid  to  dependents;  until  death 
or  remarriage  in  the  case  of  a  widow  or  widower; 
and  to  the  age  of  fifteen  in  the  case  of  children.  Pro- 
vision is  likewise  made  for  dependent  parents,  grand- 
parents, and  grandchildren. 

These  payments  are  made  from  the  sickness  insur- 
ance funds  to  which  the  workmen  contribute  two- 
thirds  of  the  cost,  for  the  first  thirteen  weeks,  but 
after  that  time  all  payments  are  made  by  mutual  trade 
associations  maintained  wholly  by  employers.  The 
associations  administer  the  law  subject  to  appeal  to 
the  higher  insurance  officials  of  the  empire. 

8  For  a  list  of  industries  for  which  compensation  is  provided  see 
Dawson,  "Social  Insurance  in  Germany  1883-1911."  Pp.  103-4. 

4  Payments  for  total  disability  may  be  increased  to  one  hundred 
per  cent  of  earnings  if  a  nurse  is  necessary. 


88  COMPENSATION  INSURANCE 

GREAT  BRITAIN 

Employers'  Liability. — In  Great  Britain  ideas  of 
individualism  and  freedom  of  contract  have  delayed 
the  enactment  of  statutes  dealing  with  employers'  lia- 
bility and  workmen's  compensation  and  have  restricted 
the  scope  of  such  laws  as  have  been  enacted.  Recov- 
ery of  indemnity  for  injuries  suffered  in  industry  was, 
to  1880,  governed  by  the  common  law  of  negligence, 
which  went  to  such  lengths  in  the  protection  of  the 
employer  that  it  was  practically  impossible  for  a  work^ 
man  to  secure  damages.  The  employer's  defenses  were 
given  greater  weight  even  than  in  the  United  States 
and  it  became  possible  for  an  employer  to  escape  all 
liability  if  his  business  was  conducted  by  a  hired  man- 
ager. 

The  Employers'  Liability  Act  of  1880  was  the  first 
legislative  protest  against  the  sweeping  favoritism  of 
the  common  law.  It  placed  the  employee  in  the  posi- 
tion of  a  stranger  when  certain  kinds  of  negligence 
could  be  proved,  modifying  considerably  the  doctrines 
of  common  employment  and  of  assumption  of  risk, 
but  leaving  untouched  the  doctrine  of  contributory 
negligence,  with  special  provisions  for  railway  em- 
ployees. The  amount  of  damages  recoverable  was, 
however,  limited  to  three  years'  wages  of  a  person 
in  a  similar  grade  and  place  of  employment,  and  con- 
tracting out  was  still  permitted. 

This  statute,  though  a  step  forward  in  the  theory 
of  the  relation  of  employer  and  employee,  was  produc- 
tive of  little  good.  The  practice  of  requiring  work- 
men to  sign  a  contract  relieving  the  employer  of  lia- 


HISTORICAL  DEVELOPMENT  89 

bility  became  general  and  such  actions  as  were  brought 
were  usually  unsuccessful. 

That  act  ...  cannot  be  said  to  have  been  successful. 
The  proof  of  negligence  has  been  found  extremely  diffi- 
cult, and  in  a  vast  proportion  of  the  cases  of  accident  no 
negligence  of  the  nature  required  by  the  act  in  fact  ex- 
isted, or  at  all  events  could  be  proved ;  and  even  if  there 
were  prinia  facie  evidence  of  negligence,  the  risks  of 
litigation  were  most  serious  both  for  employer  and  em- 
ployed. .  .  .  Regarded,  therefore,  as  a  means  of  obtain- 
ing compensation  for  injury  by  accident  with  a  reason- 
able degree  of  certainty,  the  Employers'  Liability  Act  of 
1880  must  be  considered  to  have  been  a  failure.5 

Realizing  the  inadequate  nature  of  the  act  of  1880, 
Mr.  Asquith  introduced  a  bill  in  Parliament  in  1893 
to  modify  still  further  the  law  of  employers'  liability. 
The  bill  provided  for  the  abolition  of  the  fellow-serv- 
ant doctrine,  for  the  repeal  of  any  limitation  on  the 
amount  of  damages,  and  for  the  prohibition  of  con- 
tracting out.  It  left  operative  the  doctrines  of  con- 
tributory negligence  and  of  assumption  of  risk  (ex- 
cept as  modified  in  1880).  The  bill  was  passed  by  the 
Commons  but  the  House  of  Lords  insisted  on  an 
amendment  permitting  contracting  out  under  certain 
conditions.6  This  amendment  the  Commons  refused 


B  Report  of  the  Departmental  Committee  on  Workmen's  Com- 
pensation, 1904,  p.  ii. 

8  The  scheme  of  compensation  to  be  substituted  by  contract  was 
to  be  approved  by  the  Board  of  Trade  and  to  provide  for  the 
compensation  of  all  accidents,  the  employer  contributing  at  least 
one-fourth  of  the  cost. 


90  COMPENSATION  INSURANCE 

to  accept  and  the  bill  failed  to  pass,  but  its  par- 
tial success  is  significant  of  the  general  trend  of 
opinion. 

Workmen's  Compensation,  the  Law  of  1897. — 
Finally,  in  1897,  the  Conservatives  introduced  a  bill 
which  became  the  Workmen's  Compensation  Act  of 
1897  and  which  was  the  first  law  of  the  sort  in  an 
English-speaking  country.  Mr.  Asquith,  of  the  oppo- 
sition, admitted  the  justice  of  the  principle  of  com- 
pensation as  opposed  to  the  further  modification  of 
employers'  liability  which  his  earlier  bill  had  proposed. 
It  is  interesting  to  contrast  the  statement  made  in  sup- 
port of  this  bill  that  "sound  economic  doctrine  re- 
quires that  the  employer  shall  take  all  the  ordinary 
and  extraordinary  risks  involved  in  the  carrying  on  of 
his  industry"  with  the  statement  sixty  years  earlier  in 
the  case  of  Priestly  vs.  Fowler  that  "principles  of  jus- 
tice and  good  sense  require  that  a  workman  should 
take  on  himself  all  the  ordinary  risks  of  his  employ- 
ment." 

The  law  was  limited  in  its  application  to  employ- 
ment in,  or  about,  a  railway,  factory,  mine,  quarry,  en- 
gineering work,  or  building  work  exceeding  thirty  feet 
in  height.  The  employer  was  required  to  pay  compen- 
sation for  all  accidents  except  those  due  to  the  "seri- 
ous and  willful  misconduct"  of  the  employee  and  those 
which  did  not  cause  over  two  weeks'  disability.  The 
employee  could  recover  under  the  law  of  negligence 
only  if  he  could  prove  personal  and  willful  neglect  on 
the  part  of  the  employer. 

Benefits  for  the  injured  and  their  dependents  were 
provided  as  follows : 


HISTORICAL  DEVELOPMENT  91 

Compensation  for  death : 

To  those  totally  dependent,  three  years'  wages, 
to  be  not  less  than  £150  nor  more  than  £300. 

To  those  partially  dependent,  a  reasonable  pay- 
ment according  to  the  degree  of  their  depend- 
ency, not  to  exceed  three  years'  wages  nor  £300. 

Reasonable  medical  and  burial  expenses,  not 
to  exceed  £10,  if  there  are  no  dependents. 

Compensation  for  disability: 

Fifty  per  cent  of  wages  after  the  second  week, 
not  exceeding  £i,  for  total  disability  with 'a  re- 
duced amount  for  partial  disability. 

It  was  required  that  payment  of  death  benefits  be 
made  in  lump  sums  which  might  be  invested  by  an  ar- 
bitrator to  prevent  squandering;  and  that  incapacity 
benefits  be  paid  weekly  with  privilege  of  commuta- 
tion, subject  to  a  similar  investment  provision,  after 
six  months. 

Disputes  arising  regarding  the  payment  of  com- 
pensation must  be  settled  by  a  committee  representa- 
tive of  the  parties  in  interest,  by  an  arbitrator  selected 
by  the  two  parties,  or,  if  no  agreement  could  be 
reached  on  one  of  the  first  two  methods,  by  the  judge 
of  the  county  court  who  should  act  as  an  arbitrator  or 
might  appoint  someone  to  act  in  his  place.  Appeal  could 
be  made  from  a  decision  only  on  questions  of  law. 

Contracting  out  was  permitted  by  the  new  law  pro- 
vided the  workman  was  not  a  pecuniary  loser,  and 


92  COMPENSATION  INSURANCE 

provided  the  contract  for  other  compensation  was 
not  a  condition  of  hire.  The  Registrar  of  Friendly 
Societies  was  authorized  to  determine  the  adequacy  of 
any  proposed  substitute  for  the  compensation  provided 
by  law. 

Later  Acts. — The  Act  of  1897  was  regarded  as 
something  of  an  experiment  subject  to  extension  and 
correction  in  the  future.  In  1900  its  provisions  were 
extended  to  cover  agricultural  employment  and  in 
1903  a  special  committee  was  appointed  to  recom- 
mend amendments  and  to  determine  whether  its  op- 
eration should  be  further  extended.  This  committee 
reported  in  1904,  and  in  1906  an  amending  statute  was 
passed  which  extended  the  principle  to  every  employ- 
ment, covering  all  workers  earning  £250  or  less,  with 
the  exception  of  casual  employees  and  out-workers.7 
The  act  of  1906  is  still  in  force  and  is,  in  essentials, 
the  same  as  the  act  of  1897.  Some  important  changes 
were  made,  however:  certain  trade  diseases  are  now 
covered ;  the  waiting  period  was  reduced  to  one  week 
and  compensation  is  paid  from  the  date  of  the  acci- 
dent if  disability  lasts  over  two  weeks;  the  defense 
of  "serious  and  willful  misconduct"  was  removed 
where  the  accident  resulted  in  death  or  in  serious  and 
permanent  disablement;  the  privilege  of  compensation 
was  extended  to  a  greater  number  of  dependent  rela- 
tives; maximum  benefits  for  minors  were  raised  to 
full  wages  (later  becoming  one-half  of  the  wages  they 
would  have  earned  as  their  wages  increased)  ;  the  re- 
striction of  compensation  to  accidents  occurring  "on, 

7  The  wage  limitation   does   not  apply  to   employees   engaged 
wholly  in  manual  labor. 


HISTORICAL  DEVELOPMENT  93 

in,  or  about"  the  employer's  premises  was  removed; 
and  more  careful  provision  was  made  for  the  commu- 
tation of  periodical  payments. 


Such  have  been  developments  in  foreign  coun- 
tries and  it  is  safe  to  say  that  nowhere  is  there  any 
probability  of  a  reaction  against  the  compensation 
principle.  Defects  there  are,  but  they  are  not  funda- 
mental. Many  improvements  must  be  made  in  method 
and  in  details  and  there  will  always  be  unsatisfactory 
features  connected  with  the  operation  of  any  law, 
but  workmen's  compensation  is  thoroughly  established 
and  has  become,  especially  in  those  countries  where  it 
was  early  adopted,  a  recognized  essential  in  the  gov- 
ernmental and  industrial  fabric. 

REFERENCES 

FRANKEL  and  DAWSON.  "Workingmen's  Insurance  in 
Europe,"  Charities  Publication  Committee,  New 
York  (1910).  Chaps.  I-VI,  XVII. 

DAWSON,  W.  H.  "Social  Insurance  in  Germany,  1883- 
1911."  Unwin,  London  (1912).  Chaps.  I  and  IV. 

Workmen's  Insurance  and  Compensation  Systems  in  Eu- 
rope, 24th  Annual  Report  of  the  Commissioner  of 
Labor.  "  Washington  (1909). 

Workmen's  Compensation  Laws  of  the  United  States 
and  Foreign  Countries  (1916).  Bulletin  of  the  U.  S. 
Bureau  of  Labor  Statistics,  No.  203.  Washington 
(1914). 

Report  of  the  Departmental  Committee  on  Workmen's 
Compensation.  London  (1904). 


CHAPTER  VIII 

HISTORICAL  DEVELOPMENT  OF  WORKMEN'S  COM- 
PENSATION IN  THE  UNITED  STATES  AND  TERRI- 
TORIES 

A  complete  history  of  workmen's  compensation  in 
the  United  States  and  its  territories  would  require  a 
separate  account  of  its  development  in  each  of  the  jur- 
isdictions where  laws  have  been  adopted  and  would 
involve  a  considerable  amount  of  duplication  as  each 
state  has  passed  through  much  the  same  legislative 
stages  before  abandoning  the  old  liability  doctrines. 
As  the  modification  of  the  law  of  negligence  has  al- 
ready been  considered,  the  present  chapter  will  be  de- 
voted to  the  progress  of  compensation  legislation  and 
will  serve  as  an  introduction  to  the  analysis  of  exist- 
ing laws  contained  in  succeeding  chapters. 

The  first  evidence  of  interest  in  compensation  in 
this  country  was  the  publication,  in  1893,  by  the  United 
States  Bureau  of  Labor  of  a  special  report  by  Dr.  John 
Graham  Brooks  on  Compulsory  Insurance  in  Ger- 
many. Since  that  time  the  Bureau  has  published  nu- 
merous other  studies  dealing  with  this  topic  and  in  1912 
the  Bureau  of  Labor  Statistics  inaugurated  a  Work- 
men's Insurance  and  Compensation  Series  of  which  ten 
numbers  have  already  appeared.  Many  reports,  valua- 

94 


HISTORICAL  DEVELOPMENT  95 

ble  and  otherwise,  of  state  investigating  commissions, 
the  proceedings  of  various  conferences,  and  the  publi- 
cations of  several  societies  interested  in  the  study  of 
compensation  are  also  available.  Since  the  enactment 
of  compensation  laws  the  literature  has  been  greatly 
increased  by  the  reports  of  administrative  bodies,  some 
of  which  are  exceedingly  valuable  contributions.  Sev- 
eral texts  have  been  issued  dealing  with  the  legal  side 
of  the  subject,  as  well  as  a  few  general  treatises  in 
book  form.  There  is  now,  in  fact,  a  plethora  of  pub- 
lications where  a  few  years  ago  there  was  practically 
nothing.  There  is  much  duplication  and  much  that 
is  worthless  in  all  this,  but  as  a  measure  of  interest  in 
the  movement  and  of  spread  of  the  idea,  the  accumu- 
lation of  articles,  pamphlets,  and  books  is  signifi- 
cant. 

Compensation  Schemes  of  Private  Corporations. — 
Long  before  compensation  laws  were  considered  in  the 
United  States  private  corporations,  particularly  rail- 
roads, were  making  some  provision  for  employees'  re- 
lief associations.  These  schemes  varied  in  scope  and 
effectiveness  as  well  as  in  methods.  In  many  the  cor- 
porations gave  substantial  aid  by  paying  the  expenses 
of  administration  and  by  granting  subsidies.  Some 
were  no  more  than  arrangements  for  securing  hospital 
treatment,  others  granted  a  regular  scale  of  compen- 
sation for  disability  or  death. 

The  greatest  criticisms  of  these  plans  were  that  they 
were  in  all  cases  inadequate,  making  provision  only 
for  immediate  needs,  and  that  they  were  too  often 
much  more  advantageous  to  the  corporation  than  to 
the  workman.  They  often  furnished  a  safe  repository 


96  COMPENSATION  INSURANCE 

for  funds  and  the  help  they  gave  was  much  better 
than  anything  which  had  before  existed  but  the  semi- 
compulsory  nature  of  the  membership  requirements, 
the  release  from  liability  usually  required  as  a  condi- 
tion of  receiving  benefits,  and  the  payments  required 
from  workmen  contrast  them  most  unfavorably  with 
modern  compensation.  They  were  a  step  forward  and 
indicated  a  broadened  attitude  on  the  part  of  company 
officials  who  began  to  see  the  "practical"  and  humani- 
tarian gains  from  a  policy  of  accident  prevention  and 
compensation. 

Workmen's  Collective  Insurance. — Another  plan 
with  some  resemblance  to  workmen's  compensation 
was  Workmen's  Collective  Insurance,  written  under 
a  group  accident  policy  by  the  casualty  companies. 
Premiums  for  this  type  of  insurance  and  benefits 
granted  were  expressed  as  a  percentage  of  wages,  thus 
enabling  the  employer  to  secure  for  his  employees  the 
essential  features  of  a  modern  compensation  scheme., 
Premiums  might  be  paid  by  the  employer  alone,  by  the 
workman  alone,  or  by  both.  For  a  small  increase 
in  premium  the  policy  might  be  extended  to  cover  the 
entire  twenty-four  hours,  the  ordinary  type  covering 
only  working  hours. 

The  total  volume  of  this  sort  of  insuiance  has  been 
small — it  has  not  been  featured  by  the  insurance  com- 
panies and  many  employers  are  unwilling  to  pay  the 
apparently  high  premiums.  It  has  no  place,  of  course, 
in  compensation  states  and  is  rapidly  falling  into  dis- 
use. 

The  Maryland  Act  of  1902. — The  first  legislation 
embodying  in  any  degree  the  compensation  principle 


HISTORICAL  DEVELOPMENT  97 

was  the  act  providing  for  the  cooperative  accident  in- 
surance fund  of  Maryland,  passed  in  1902.  The  stat- 
ute applied  only  to  mining,  quarrying,  steam  and  street 
railway  service,  and  to  municipal  operations  in  con- 
nection with  sewers,  excavations,  or  physical  struc- 
tures. The  liability  of  the  employer  was  extended  to 
embrace  the  negligence  of  a  fellow-servant,  and  only 
one-half  damages  were  to  be  forfeited  if  contributory 
negligence  could  be  proved.  The  employer,  however, 
was  exempted  from  all  liability  for  accidents  on  the 
payment  of  a  stated  annual  premium,  varying  with 
the  industry  and  payable  in  monthly  installments,  into 
an  insurance  fund  to  be  administered  by  the  insurance 
commissioner,  who  was  to  receive  one  per  cent  of  the 
receipts  in  payment  for  the  extra  work  involved.1  The 
employer  was  permitted,  after  giving  notice  to  his 
employees,  to  deduct  one-half  of  these  premiums  from 
their  wages.  Exemption  might  also  be  secured  by 
showing  to  the  satisfaction  of  the  insurance  commis- 
sioner that  there  was  already  in  operation  a  plan  more 
advantageous  to  the  employees  than  that  proposed  by 
the  act. 

The  benefits  granted  by  the  statute,  were  mea- 
ger— $1,000  was  to  be  paid  from  the  fund  to  the  heirs 
or  personal  representatives  of  any  employee  fatally 
injured  in  the  course  of  his  employment.  Death  must 
occur  within  one  year  and  the  injury  must  be  due  to 
the  employment.  There  was  no  provision  for  non-fa- 

1  The  annual  premiums  were  as  follows :  for  each  employee  of  a 
steam  railroad,  $3.00;  of  a  mine  or  quarry,  $1.80;  of  a  street  rail- 
way, $0.60.  The  insurance  commissioner  was  authorized  to  set 
the  premiums  payable  by  municipalities, 


98  COMPENSATION  INSURANCE 

tal  injuries.  The  insurance  commissioner  was  given 
plenary  power  of  administration  with  no  right  of  ap- 
peal to  the  courts. 

The  law  remained  in  force  a  little  less  than  two 
years,  being  declared  unconstitutional  by  the  courts 
on  the  grounds  that  it  vested  judicial  powers  in  the 
insurance  commissioner,  deprived  workmen  of  a  right 
hitherto  enforceable  in  the  courts,  and  denied  the 
right  of  trial  by  jury.  Its  operations  were  insignifi- 
cant, only  nine  companies  contributing  to  the  fund, 
of  which  the  receipts  were  $5,313.90.  Of  this,  $5,000 
was  paid  out  in  death  claims  and  $300  for  ex- 
penses. 

The  Massachusetts  Act  of  1908. — No  further  laws 
were  passed  until  1908,  although  a  Massachusetts  com- 
mittee had  recommended  a  law  modeled  after  the 
English  act  in  1903,  and  an  Illinois  commission  had 
suggested  a  voluntary  act  in  1905.  The  Massachu- 
setts act  of  1908  provided  no  definite  plan  of  compen- 
sation but  authorized  the  establishment  of  private 
plans  in  the  following  terms : 

Any  employer  of  labor  may  submit  to  the  State  Board 
of  Conciliation  and  Arbitration  a  plan  of  compensation 
for  employees  in  his  employ,  providing  for  payments  to 
said  employees  in  the  event  of  injury  in  the  course  of 
their  employment,  based  upon  a  certain  percentage  of 
the  average  earnings  of  such  employees,  and  without 
reference  to  legal  liability  under  the  common  law  or  the 
employers'  liability  act.  After  examination  of  such  plan 
of  compensation,  and  a  public  hearing  thereon  after  pub- 
lic notice  thereof,  the  board  of  conciliation  and  arbitra- 
tion may,  if  it  considers  the  same  fair  and  just  to  the 


HISTORICAL  DEVELOPMENT  99 

employees,  give  its  approval  thereof  by  certificate  to  be 
attached  to  such  plan.2 

After  obtaining  official  approval  the  employer  was 
permitted  to  enter  into  a  contract  with  his  employee 
by  which  the  compensation  scheme  was  to  be  accepted 
in  lieu  of  all  legal  liability  for  accidental  injuries.  The 
contract  could  not  be  made  a  condition  of  employment 
nor  was  it  to  be  binding  for  more  than  one  year  from 
its  date.  The  law  is  purely  of  historical  interest,  as  it 
was  a  dead  letter  from  the  start. 

The  Federal  Act  of  1908. — The  Federal  act  of 
1908,  though  notoriously  inadequate,  was  the  first  real 
compensation  law  to  be  enacted  in  the  United  States  3 
and  continued  in  force  until  it  was  superseded  by  the 
act  of  1916. 

Later  Acts. — On  March  4,  1909,  Montana  adopted 
a  compulsory  compensation  law  to  take  effect  on  Oc- 
tober I,  1910,  and  applying  only  to  the  coal  mining 
industry.  A  cooperative  insurance  fund  was  estab- 
lished to  be  supported  by  contributions  from  employers 
and  workmen.  The  law  was  declared  unconstitu- 
tional since  the  workman  could  still  sue  under  the 
common  law,  a  double  liability  being  thereby  imposed 
on  the  employer.  A  somewhat  similar  statute  was 
adopted  in  Maryland,  in  1910,  applying  to  miners  in 
two  counties,  but  this  was  repealed  in  1914.  The  only 

2  Laws  of  Mass.,  1908,  Chap.  489,  §  i. 

8  The  first  compensation  law  to  take  effect  within  the  jurisdic- 
tion of  the  United  States  was  that  enacted  by  the  U.  S.  Philippine 
Commission  in  1906  which  provided  for  the  continuation  of  wages 
or  salary  for  not  more  than  90  days  of  disability  resulting  from 
an  injury  incurred  while  on  duty. 


100  COMPENSATION  INSURANCE 

other  laws  not  now  in  effect  are  the  compulsory  New 
York  law  of  1910,  the  elective  Kentucky  law  of  1914, 
both  declared  unconstitutional,  and  the  impractical 
Maryland  act  of  1912  which  was  superseded  by  the 
act  of  1914. 

Beginning  with  the  year  1909,  interest  in  com- 
pensation has  grown  rapidly.  Many  investigating 
commissions  have  been  appointed  and  the  greater 
number  of  our  present  laws  are  a  result  of  their  la- 
bors combined  with  the  recommendations  of  various 
private  organizations.  Barring  the  elective  New  York 
statute  of  1910,*  which  has  been  a  dead  letter,  the  state 
compensation  law  which  has  been  longest  in  force,  is 
that  of  New  Jersey,  which  went  into  effect  on  July 
4,  1911.  Two  other  laws,  those  of  Kansas  and  Wash- 
ington, were  passed  at  an  earlier  date  (March  14, 
1911)  than  the  New  Jersey  statute,  but  they  did  not 
become  effective  until  the  following  January  first  and 
October  first,  respectively.  Other  laws  passed  in  1911 
were  those  of  Massachusetts,  New  Hampshire,  Ohio 
and  Wisconsin. 

Since  1911  the  compensation  idea  has  spread  rapidly 
until,  at  the  present  writing,  the  United  States,  thirty- 
two  states,  and  two  territories  have  adopted  this  prin- 
ciple and  several  others  are  considering  it.  In  every 
state  prominent  industrially  there  is  a  compensation 
law  in  force.  The  following  table  indicates  the  growth 
of  such  legislation  in  the  United  States  and  territories. 

4  In  the  remainder  of  this  volume  the  elective  New  York  law 
will  not  be  considered,  as  it  has  no  effect.  Any  reference  to  the 
New  York  act  will  apply  to  the  compulsory  statute  enacted  in 


HISTORICAL  DEVELOPMENT 


101 


YEARS  OF  ENACTMENT  AND  TAKING  EFFECT  OF  H  CRKMM-'S  COMPENSATION  LAWS 
Now  IN  FORCE  IN  THE  UNITED  STATES  AND  TERRITORIES* 


Year 

1911 

1912 

1913 

1914 

1915 

1916 

Laws  enacted  

7 

3 

ii 

2 

IO 

2 

Laws  taking  effect      

3 

6 

7 

g 

4 

Total    number   of   laws   in 

force  

3 

IO 

16 

23 

31 

34 

States    and    Territories    in 

which  enacted  

*Kan. 

Ariz. 

*Cal. 

La. 

Colo. 

Ky. 

*Mass. 

Mich. 

*Conn. 

Md. 

Ind. 

U.S. 

*N.  H. 

R.  I. 

111. 

*Me. 

N.  J. 

la. 

Mont. 

*0hio 

Minn. 

Okla. 

Wash. 

*Neb. 

*Penna. 

Wise. 

Nev. 

Vt. 

*N.  Y. 

Wyo. 

*0re. 

Alaska 

Tex. 

Hawaii 

W.  Va. 

Along  with  this  development  in  legislation  has  gone 
a  corresponding  development  in  public  opinion.  A 
few  years  ago  the  proponents  of  compensation  were 
limited  to  a  few  economists  and  government  officials, 
the  great  majority  of  the  people  knowing  nothing  of 
the  movement,  and  most  manufacturers  and  labor  or- 
ganizations actively  opposing  it.  Now  it  is  difficult 
to  find  a  person  with  any  knowledge  of  the  subject 
who  will  offer  objection  to  the  general  principle.  Criti- 
cisms are  directed  at  details  and  methods,  but  all 
classes  are  convinced  that  compensation  is  inevitable 
and  desirable. 

The  foregoing  presents  in  brief  the  development  of 
the  institution  of  workmen's  compensation  which  has 
now  become  a  definitely  accepted  part  of  our  social 
structure  and  which  has  paved  the  way  for  the  discus- 
sion and  development  of  social  insurance  along  other 
lines.  In  the  three  following  chapters  the  statutes  now 
in  force  are  analyzed  with  a  view  to  explaining  the  es- 
sential features  and  variations  of  compensation  laws 

5  An  asterisk  indicates  that  the  law  took  effect  in  the  following 
year. 

8 


102  COMPENSATION  INSURANCE 

as  adopted  in  this  country,  and  to  suggesting  certain 
improvements.6 

REFERENCES 

RUBINOW,  I.  M.     "Social  Insurance,"  Holt,  New  York 

(1913).     Chaps.  X  and  XL 
Workmen's  Insurance  and  Benefit  Funds  in  the  United 

States.    23d  Annual  Report  of  the  Commissioner  of 

Labor,  Washington  (1909).     Pp.  271-662,  749-793. 
Workmen's   Compensation  Laws  of   the   United  States 

and  Foreign  Countries,  ipi6.    Bulletin  of  the  U.  S. 

Bureau  of  Labor  Statistics,   No.  203,  Washington 

(1916). 

6  Since  this  chapter  went  to  the  printer  the  enactment  of  com- 
pensation laws  by  five  states  has  been  reported,  as  follows : 
Idaho,  Delaware,  New  Mexico,  South  Dakota,  and  Utah. 


CHAPTER  IX 

WORKMEN'S  COMPENSATION  LEGISLATION  IN  THE 
UNITED  STATES  AND  TERRITORIES 

Among  the  thirty-three  workmen's  compensation 
acts  in  force  in  the  United  States  there  is  wide  diver- 
sity of  expression  of  the  compensation  idea.  These 
laws  differ  in  extent  of  application,  in  amount  of  com- 
pensation, in  method  of  administration,  in  insurance 
requirements,  and  in  various  other  elements  involved 
in  the  application  of  the  principle  of  compensation. 
They  are  all  based,  however,  on  the  unifying  purpose 
of  compensating  the  workman  for  economic  loss  from 
industrial  accidents  without  requiring  proof  of  fault 
on  the  part  of  the  employer  or  of  freedom  from  fault 
on  the  part  of  the  employee.  Their  diversity  is  due  to 
differences  in  opinion  on  the  proper  methods  of  secur- 
ing justice  to  the  workman,  to  varying  degrees  of  skill 
and  diligence  in  drafting  laws,  and  to  considerations 
of  expediency  in  presenting  to  legislatures  bills 
which  do  not  arouse  effective  opposition  nor  encoun- 
ter constitutional  objections.  The  demand  for  com- 
pensation legislation  has  often  been  answered  by  the 
passage  of  acts  which  have  been  drawn  up  without  ade- 
quate investigation  of  the  subject  and  by  incompetent 
or  partisan  officials.  So  many  considerations  foreign 
to  justice  and  scientific  accuracy  enter  into  the  passage 
of  legislative  measures  that  we  can  not  be  said  to 

103 


104  COMPENSATION  INSURANCE 

have  an  ideal  compensation  statute  on  the  books  of  any 
of  our  states,  although  many  of  them  are  praise- 
worthy as  first  steps  in  this  form  of  legislation. 

The  defects  of  our  compensation  legislation  do  not 
result  alone  from  legislative  expediency  and  lack  of 
careful  investigation.  We  are  as  yet  young  in  this 
field  and  experience  will  point  the  way  to  many 
changes,  the  necessity  of  which  could  not  be  foreseen. 
Already  many  features  which  experience  has  proved 
necessary  or  diminished  opposition  made  possible  have 
been  incorporated  by  amendment  of  existing  statutes. 
The  tendency  of  amendments  is  toward  liberalization 
and  administrative  reform,  and  toward  the  correction 
of  those  defects  which  have  become  evident  in  practical 
operation.1 

In  the  following  pages  the  provisions  of  existing 
laws  are  analyzed  with  a  view  to  showing  the  prevail- 
ing practice  in  the  essential  features  of  a  compensa- 
tion statute.  It  is  further  attempted  to  indicate  the 
relative  desirability  of  various  provisions,  to  explain 
the  motives  for  their  enactment,  and  to  suggest  possi- 
bilities of  improvement. 

Election  of  Compensation. — Twenty-five  states  and 
one  territory 2  have  adopted  so-called  elective  laws 
which  provide  for  optional  compensation.  Neither 
employers  nor  employees  are  forced  to  accept  the  pro- 


1  One  of  the  problems  of  amendment  consists  in  revising  or 
eliminating  provisions  inserted  in  slavish  imitation  of  unsuitable 
models. 

2  Ariz.,  Colo.,  Conn.,  111.,  Ind.,  la.,  Kan.,  Ky.,  La.,  Me.,  Mass., 
Mich.,  Minn.,  Mont,  Neb.,  Nev.,  N.  H.,  N.  J.,  Ore.,  Penna.,  R.  I., 
Tex.,  Vt.,  W.  Va,  Wis.,  Alaska. 


COMPENSATION  LEGISLATION         105 

visions  of  the  act  and  either  may  elect  to  remain  under 
the  system  of  employer's  liability.  This  privilege  of 
election  is  of  little  practical  significance,  however,  for 
the  alternative  to  acceptance  is  highly  disadvantageous 
to  both  classes.  The  employer  who  refuses  to  elect 
the  act  is,  in  practically  all  cases,  made  liable  for  dam- 
ages under  the  common  law  with  the  defenses  of  as- 
sumption of  risk,  common  employment,  and  contribu- 
tory negligence  removed.  If  the  employee  rejects  the 
act  the  employer  is  permitted  to  make  use  of  these  de- 
fenses.3 Further,  in  practically  every  act,  election  is 
automatic — employers  and  workmen  are  presumed  to 
have  elected  compensation  unless  they  serve  notice  to 
the  contrary.  These  provisions  achieve  the  purpose 
for  which  they  are  inserted,  that  of  bringing  the  ma- 
jority of  the  laboring  population  under  the  compensa- 
tion act.  Those  who  do  not  take  the  trouble  to  con- 
sider the  question  are  reached  by  the  automatic  appli- 
cation of  the  law  while  those  who  investigate  usually 
prefer  to  accept  rather  than  take  the  risks  of  a  suit 
at  law  under  the  new  code  of  liability.  Rejection  is 
confined  to  a  small  group  of  reactionaries  and  non- 
hazardous  trades.4 

There  is  little  need  of  advising  the  acceptance  of  a 

f  3  In  the  Pennsylvania  Act  the  defenses  are  removed  even 
though  the  employee  rejects  the  law.  The  defense  of  contribu- 
tory negligence  is  not  abrogated  if  the  accident  is  caused  by  the 
employee's  intoxication,  or  by  "reckless  indifference  to  danger." 
4  In  Texas  and  West  Virginia  the  compensation  act  is  elective 
as  to  employers  and  compulsory  on  employees  if  the  employer 
has  elected  it.  In  Arizona  the  act  is  compulsory  on  employers 
but  the  employee  may  elect  to  sue  under  the  common  law  after 
the  injury  has  occurred. 


106  COMPENSATION  INSURANCE 

properly  drawn  compensation  act  at  this  time  and  it 
should  be  pointed  out  that  election  of  compensation  on 
the  part  of  both  employers  and  employees  is  proceeding 
to  a  much  greater  extent  than  formerly  from  a  new 
concept  of  social  values  and  from  the  promptings  of 
"enlightened  self-interest."  Where  formerly  it  was 
necessary  to  make  a  law  elective  for  conciliatory  rea- 
sons, its  necessity  now  rests  on  grounds  of  constitu- 
tional law.  It  is  to  be  hoped  that  even  this  necessity 
will  disappear. 

In  seven  states  and  one  territory  5  workmen's  com- 
pensation has  been  made  compulsory.  Four  of  these 
extend  compulsion  to  most  employments  subject  to  the 
act  but  provide  that  in  certain  employments  the  act 
shall  be  elective;  and  in  Ohio,  while  compensation  is 
compulsory,  as  a  penalty  on  the  employer  for  failing 
to  comply  with  certain  provisions,  the  injured  em- 
ployee is  entitled  to  bring  suit  at  common  law  with 
the  three  defenses  removed  or  have  compensation 
awarded  under  the  terms  of  the  act,  as  he  may  choose. 
Nearly  one-half  of  the  elective  acts  are  compulsory 
as  to  public  bodies. 

There  is  little  to  be  said  in  favor  of  an  elective  law 
on  grounds  of  principle.  There  is  no  good  reason 
for  leaving  to  individual  discretion  the  acceptance  of 
a  measure  of  social  justice  so  universally  approved 
as  workmen's  compensation — compulsion  should  be 
applied  wherever  possible.  It  is  true  that  an  elective 

5Cal.,  Md.,  N.  Y.,  O.,  Okla.,  Wash.,  Wyo.,  Hawaii.  The  fed- 
eral act  is  also  compulsory.  Map  No.  i,  p.  107,  shows  the  states 
which  have  adopted  compensation  laws  and  indicates  the  nature 
of  each,  whether  elective  or  compulsory. 


108  COMPENSATION  INSURANCE 

law  is  better  than  none  at  all  and  that  in  some  jurisdic- 
tions an  elective  clause  is  necessary  if  the  law  is  not 
to  be  declared  unconstitutional,  but  the  necessity  of  in- 
serting a  clause  which  is  no  more  than  a  trick  to  evade 
the  constitutional  question  is  subversive  of  good  legis- 
lative practice  and  furnishes  an  argument  in  favor  of 
constitutional  amendment. 

Employments  Covered. — No  compensation  law  in 
the  United  States  covers  all  employments,  except  the 
federal  act,  which  covers  all  civil  employees  of  the 
United  States  government.  Express  exception  is  made 
of  certain  classes,  and  enumeration  of  those  to  which 
the  law  applies  is  included  in  its  provisions.  Some 
statutes  cover  all  employments  with  the  exception  of 
casual  labor  or  labor  not  in  the  "usual  course  of  busi- 
ness" of  the  employer.  About  one-half  of  the  acts 
cover  all  employments  except  domestic  service,  agri- 
cultural labor,  and  casual  labor.  Eleven  states  restrict 
the  operation  of  the  law  to  employers  having  a  certain 
number  of  workmen  6 — others  specifically  except  out- 
workers, while  several  restrict  the  operation  of  the  act 
to  employees  who  receive  earnings  below  a  specified 
maximum.  Employees  of  railroads  engaged  in  inter- 
state commerce  are  usually  excluded  from  the  opera- 
tion of  the  act,  and  in  some  cases  employees  in  im- 
portant industries  are  excluded,  evidently  through  the 
pressure  of  important  business  interests.7  Enumera- 
tions of  specific  employments  or  of  classes  of  employ- 

6  In  eight  of  these  the  number  is  set  at  five ;  in  one,  at  ten ;  in 
one,  at  four,  and  in  one,  at  two. 

7  E.  g.,  the  exception  of  cotton  ginning  in  Texas  and  the  excep- 
tion of  distilleries  in  the  first  Kentucky  law. 


COMPENSATION  LEGISLATION         109 

ments  to  which  the  law  shall  apply  are  contained  in 
the  statutes  of  eleven  states,  varying  from  the  limited 
classification  of  New  Hampshire  to  the  extensive  and 
detailed  list  of  New  York.  In  all  cases  the  enumera- 
tions are  based  on  the  idea  that  the  compensation 
law  should  cover  only  "hazardous"  or  "extra-hazard- 
ous" employments. 

A  perfect  scheme  of  compensation  should  cover  all 
employments  without  exception.  There  are  two  suf- 
ficient reasons  for  making  exceptions;  that  with  the 
prevailing  state  of  public  or  legislative  opinion,  a  bill 
covering  all  employments  would  fail  of  enactment, 
and  that  the  social  cost  of  including  a  given  employ- 
ment is  not  justified  by  the  social  gain  to  be  derived. 
The  operation  of  the  first  reason  depends  on  local 
conditions  and  is  justified  only  to  secure  the  establish- 
ment of  the  principle.*  The  second  reason  is  applicable 
to  a  very  limited  class — to  quote  the  Standards  for 
Workmen's  Compensation  Laws:8 

The  only  exception  which  should  be  made  is  of  casual 
employees  in  the  service  of  employers  who  have  only  such 
employees  and  who,  therefore,  cannot  fairly  be  required 
to  carry  compensation  insurance  policies.  Such  policies, 
on  payment  of  a  small  additional  premium,  are  now 
drawn  so  as  to  embrace  casual  as  well  as  regular  em- 
ployees. No  serious  burden  is,  therefore,  entailed  on 
employers,  even  of  domestic  servants,  in  making  them 
liable  to  pay  compensation  even  to  casual  employees. 

The  usual  exceptions  are  plainly  the  result  of  at- 
tempts to  relieve  small  employers  of  liability  and  to 

8  Published  by  the  American  Association  for  Labor  Legislation. 


110  COMPENSATION  INSURANCE 

exclude  relatively  non-hazardous  occupations.  The  in- 
dividual who  constitutes  his  employer's  entire  labor 
force  has  quite  as  valid  a  claim  to  compensation  for 
injury  as  has  a  workman  who  is  only  one  unit  in  a 
large  organization.  Liability  for  such  compensation 
is  not  a  serious  matter  for  the  small  employer  since  he 
may  take  out  an  insurance  policy  for  a  small  premium. 
The  attempt  is  frequently  made  to  justify  the  exclu- 
sion of  agricultural  laborers  and  domestic  servants 
on  the  ground  that  these  occupations  are  non-hazard- 
ous. Such  statistics  as  are  available  discredit  this  ar- 
gument but  even  were  it  true  it  should  have  little 
weight  since  insurance  companies  grant  a  compara- 
tively low  rate  on  non-hazardous  employments. 

While  it  is  true  that  practical  reasons  justify  the 
exclusion  of  casual  laborers  in  the  service  of  employ- 
ers who  have  no  other  employees,  it  would  seem  that 
some  provision  should  be  made  for  them,  possibly  from 
the  public  treasury. 

Injuries  Covered. — But  two  states  9  have  laws  which 
apply  to  all  injuries  occurring  "in  the  course  of  the 
employment."  One  state  10  includes  all  accidental  in- 
juries arising  "out  of  and  in  the  course  of  the  employ- 
ment." In  all  others  exceptions  are  made  which  re- 
flect the  old  "personal  fault"  concept  and  which  aim 
to  regulate  the  conduct  of  an  employee  by  denying 
compensation  to  him  and  to  his  dependents  under  cer- 
tain conditions.  The  most  frequent  exceptions  are  of 
injuries  arising  from  willful  misconduct,  serious  and 

9  Texas  and  Montana.     The  latter  has  certain  special  restric- 
tions regarding  hernia,  and  specifically  excepts  disease. 

10  Illinois. 


COMPENSATION  LEGISLATION         111 

willful  misconduct,  intoxication,  and  willful  self-inflic- 
tion. In  several  states  death  must  occur  within  a 
certain  length  of  time  after  injury  in  order  to  be  made 
the  basis  of  compensation  to  dependents,  the  period 
varying  from  six  months  to  two  years. 

The  exceptions  noted  above  have  as  their  motive 
relief  of  the  employer  from  liability  for  injuries  which 
are  without  question  due  to  the  action  of  the  em- 
ployee as  an  individual.  The  terms  "serious  and  will- 
ful misconduct"  and  "willful  misconduct"  were  bor- 
rowed from  the  English  act  and  have  little  to  com- 
mend them.  They  are  exceedingly  difficult  of  inter- 
pretation and  merely  preserve  certain  objectionable 
features  of  the  old  liability  system.  "Intoxication," 
likewise,  cannot  be  easily  defined  and  it  is  probable 
that,  as  a  matter  of  policy,  the  employer  should  be 
made  liable  for  injuries  arising  from  this  cause  in  or- 
der to  impress  him  with  the  advisability  of  making 
sobriety  a  condition  of  employment.  "Willful  self-in- 
fliction" may  be  justified  as  a  cause  for  denial  of  com- 
pensation, although  actual  cases  of  such  action  would 
probably  be  very  unusual,  even  in  the  event  that  pay- 
ment could  be  secured.  It  would  seem  that  even  here 
compensation  should  not  be  denied  to  dependents  since 
the  economic  need  is  equally  pressing  and  since  there 
is  no  justification  for  imposing  a  penalty  on  them  for 
another's  misconduct.  Compensation  for  all  accidents 
arising  "in  the  course  of  employment"  has  the  cardinal 
merit  of  simplicity,  and  does  away  almost  entirely  with 
the  necessity  of  official  interpretation. 

Massachusetts  and  California  include  occupational 
diseases  within  the  scope  of  their  compensation  laws. 


COMPENSATION  INSURANCE 

A  number  of  laws  specifically  except  this  form  of  in- 
jury, while  the  majority  make  no  mention  of  occupa- 
tional diseases  as  such.  It  has  usually  been  held  that 
the  terms  "accidental  injury"  and  "injury  by  acci- 
dent" which  are  included  in  most  laws  do  not  embrace 
occupational  diseases.  It  is  obvious  that  in  practically 
every  state  there  was  no  intention  of  covering  such 
injuries,  but  disease  which  is  the  natural  and  direct 
result  of  a  compensable  injury  is  included  in  all  cases. 

Workmen  should  be  compensated  for  losses  from 
disease  arising  out  of  the  conditions  under  which  in- 
dustry is  conducted.  While  industrial  diseases  are 
less  spectacular  than  accidents  and  are  less  likely  to 
attack  without  warning,  responsibility  for  their  oc- 
currence is  attributable  to  the  industry  and  it  should 
bear  the  cost  of  furnishing  adequate  compensation. 
The  arguments  advanced  in  favor  of  accident  com- 
pensation apply  even  more  forcibly  to  industrial  dis- 
eases since  the  latter  are  less  susceptible  of  control  by 
the  individual  workman. 

The  Beneficiaries  of  Compensation. — In  cases  of 
disability  compensation  is  paid  to  the  disabled  work- 
man, while  in  case  of  death  payment  is  made  to  sur- 
viving dependents  if  there  are  any;  if  not,  some  provi- 
sion is  usually  made  for  funeral  expenses.  In  only 
one  state,  Oklahoma,  is  there  no  provision  for  depend- 
ents in  case  of  death.  The  following  quotation  from  the 
California  act  is  typical  of  definitions  of  dependents : 

Sec.  19.  (a)  The  following  shall  be  conclusively  pre- 
sumed to  be  wholly  dependent  for  support  upon  a  de- 
ceased employee: 


COMPENSATION  LEGISLATION          113 

(1)  A  wife  upon  a  husband  with  whom  she  was 
living  at  the  time  of  his  death,  or  for  whose 
support  such  husband  was  legally  liable  at  the 
time  of  his  death. 

(2)  A  husband  upon  a  wife  upon  whose  earnings 
he  is  partially  or  wholly  dependent  at  the  time 
of  her  death. 

(3)  A  child  or  children  under  the  age  of  eighteen 
years  (or  over  said  ages,  but  physically  or  men- 
tally incapacitated  from  earning)  upon  the  par- 
ent with  whom  he  or  they  are  living  at  the  time 
of  the  death  of  such  parent  or  for  whose  main- 
tenance such  parent  was  legally  liable  at  the 
time  of  his  death,  there  being  no  surviving  de- 
pendent parent. 

(b)  In  all  other  cases,  questions  of  entire  or  partial 
dependency  and  questions  as  to  who  constitute  depend- 
ents and  the  extent  of  their  dependency  shall  be  deter- 
mined in  accordance  with  the  fact,  as  the  fact  may  be  at 
the  time  of  the  death  of  the  employee. 

(c)  No  person  shall  be  considered  a  dependent  of  any 
deceased  employee  unless  a  member  of  the  family  of  such 
employee  or  unless  such  person  bear  to  such  employee 
the  relation  of  husband  or  wife,  child,  adopted  child  or 
stepchild,  father  or  mother,  father-in-law  or  mother-in- 
law,  grandfather  or  grandmother,  brother  or  sister,  uncle 
or  aunt,  brother-in-law  or  sister-in-law,  nephew  or  niece. 

Illegitimate  and  posthumous  children  are  often  includ- 
ed by  express  statement. 

Non-resident  alien  dependents  are  variously  treat- 
ed; many  acts  make  no  mention  of  them,  some  ex- 
clude them  from  the  list  of  beneficiaries,  while  others 
expressly  include  them,  but  often  at  a  reduced  rate. 


114  COMPENSATION  INSURANCE 

In  some  states  payment  will  be  made  only  to  certain 
of  the  decedent's  immediate  relatives.  New  Hamp- 
shire even  goes  so  far  as  to  deny  payment  to  depend- 
ents not  resident  in  the  state  at  the  time  of  the  work- 
man's death.  As  a  matter  of  justice  aliens  should  re- 
ceive payments  on  the  same  basis  as  other  dependents. 

Waiting  Period. — In  the  majority  of  states  pay- 
ment of  compensation  begins  only  after  a  two  weeks 
duration  of  disability.  Oregon  alone  requires  pay- 
ment unqualifiedly  from  date  of  injury,  while  Illinois 
and  Minnesota  provide  for  such  payment  in  the  case 
of  permanent  injuries.11  In  six  states  payment  dates 
back  to  the  time  of  the  injury  if  disability  continues 
for  a  certain  length  of  time.12.  This  waiting  period  re- 
fers only  to  the  actual  payment  of  benefits — medical 
and  surgical  aid  must  be  supplied  immediately  on 
the  occurrence  of  an  injury.  Its  purpose  is  to  exclude 
unimportant  injuries  and  to  prevent  malingery.  In  a 
multitude  of  cases  where  disability  lasts  for  a  few 
hours  or  days  the  cost  of  administration  of  compensa- 
tion benefits  would  be  disproportionately  large  in  com- 
parison with  benefits  and  would  result  in  a  net  social 
loss.  This  fact  makes  .necessary  the  exclusion  of  a 
large  class  of  accidents  which  make  a  considerable 
showing  in  the  aggregate  but  which  are  of  little  im- 
portance in  the  individual  case. 

One  of  the  dangers  of  granting  compensation  arises 

"Certain  acts  provide  waiting  periods  of  three,  six,  seven,  or 
ten  days  and  one  sets  the  time  at  three  weeks.  In  Washington 
no  payment  is  made  unless  the  time  lost  is  equivalent  to  a  loss 
of  5%  of  the  monthly  wages. 

"Two  to  eight  weeks. 


COMPENSATION  LEGISLATION         115 

from  the  inducement  given  the  workman  to  feign  in- 
jury or  to  allege  a  longer  period  of  incapacity  from 
actual  injury  than  is  justified.  The  waiting  period 
furnishes  an  opportunity  for  examination  and  for  de- 
tection of  this  sort  of  malingery  and  should  be  of 
sufficient  length  to  counteract  any  tendency  in  this  di- 
rection. If  it  is  too  short  it  will  tempt  the  workman 
to  prolong  his  period  of  idleness  in  order  to  secure 
payment  of  benefits;  if  too  long,  an  undue  burden  of 
loss  will  be  imposed  upon  him.  The  provision  that 
compensation  shall  date  back  to  the  injury  if  disabil- 
ity endures  for  a  considerable  length  of  time  is  un- 
doubtedly wise,  but  a  waiting  period  of  two  wreeks 
with  compensation  from  date  of  injury  if  incapacity 
for  work  lasts  over  two  weeks  is  too  great  a  tempta- 
tion to  malinger.  Prolongation  of  disability  for  one 
or  two  days  would  entitle  the  workman  to  the  full  two 
weeks'  compensation  in  many  cases.  The  length  of 
the  waiting  period  should  strike  an  equitable  mean  be- 
tween conflicting  considerations  and  should  depend  to 
some  extent  on  local  conditions  of  industry  and  ad- 
ministration. In  no  case  should  it  be  over  two  weeks. 


CHAPTER  X 

WORKMEN'S   COMPENSATION  LEGISLATION  IN  THE 
UNITED  STATES  AND  TERRITORIES  (Continued) 

THE  SCHEDULE  OF  COMPENSATION 

Since  workmen's  compensation  laws  are  designed 
to  provide  benefits  for  those  suffering  economic  loss 
through  injury,  a  most  important  section  of  a  com- 
pensation act  is  that  setting  forth  the  amount  of  such 
benefits.  To  be  just,  they  should  be  proportioned  to 
the  losses  which  they  indemnify.  The  first  problem 
is  to  find  a  suitable  measure  of  the  loss  which  will 
serve  as  a  basis  for  the  computation  of  payments.  The 
most  practicable  measure  of  economic  loss  is  the  wages 
received  by  the  injured  workman  at  the  time  of  the 
injury  and  this  has  been  adopted  by  all  except  three 
states.  Compensation  payments  are  expressed  in  the 
form  of  a  percentage  of  wages,  usually  between  defi- 
nite limits.  This  percentage  must  not  be  set  too  low 
lest  the  benefits  prove  insufficient,  nor  should  it  be  set 
too  high  lest  they  offer  an  incentive  to  malingery. 

Provision  must  likewise  be  made  for  medical  and 
surgical  aid  and  for  the  payment  of  benefits  in  peri- 
odical installments  or  lump  sums  as  may  be  deemed 
wise. 

Classification   of"  Industrial  Accidents. — For   pur- 

116 


COMPENSATION  LEGISLATION          117 

poses  of  compensation  industrial  accidents  are  divided 
into  two  general  classes,  non-fatal  and  fatal.  In  non- 
fatal  cases  all  payments  are  made  to  the  injured  person 
and  the  only  question  involved  concerns  their  amount. 
Fatal  cases  raise  questions  both  of  amount  and  of  dis- 
tribution. If  a  certain  fixed  percentage  is  to  be  paid 
to  dependents,  regardless  of  their  number  and  rela- 
tionship, it  must  be  determined  how  that  amount  is  to 
be  distributed  among  them,  whether  they  are  to  share 
equally  or  according  to  relationship  and  degree  of  de- 
pendency. This  may  be  accomplished  by  the  insertion 
of  provisions  in  the  law  or  by  authorizing  the  admin- 
istrative body  to  adjust  such  matters.  If  it  is  consid- 
ered best  to  award  a  definite  percentage  to  each  of  the 
dependents,  according  to  relationship  or  dependency, 
these  percentages  must  find  expression  in  the  law. 
Further,  it  is  necessary  to  provide  for  payments  to 
non-resident  aliens  if  it  is  desired  to  treat  them  dif- 
ferently from  residents. 

While  the  complications  in  fatal  cases  arise  from 
the  nature  of  the  beneficiaries,  in  non-fatal  cases  they 
are  due  to  the  varying  nature  of  injuries,  which  are 
classified  as  total  or  partial  disabilities.  Total  disabil- 
ity is  that  disability  which  renders  it  impossible  for  a 
workman  to  perform  any  work  whatsoever,  while  par- 
tial disability  exists  when  he  is  able  to  continue  work 
but  with  a  reduced  earning  capacity.  Either  total  or 
partial  disability  may  be  permanent  or  temporary;  the 
former  continuing  for  life,  the  latter  for  a  shorter 
period.  Another  class  usually  inserted  embraces  spe- 
cific injuries,  such  as  the  loss  of  an  eye,  hand,  foot, 
etc. 


118  COMPENSATION  INSURANCE 

Each  of  these  groups  may  in  turn  be  divided  into 
compensate  and  non-compensable  cases;  or,  specifi- 
cally, those  cases  in  which  compensation  is  payable 
under  the  law  and  those  cases  in  which  it  is  not  so 
payable. 

Total  Disability  Benefits. — For  temporary  total  dis- 
ability a  sum  equal  to  fifty  per  cent  of  the  wages  is 
granted  in  twenty-one  states  and  one  territory,  the 
usual  basis  being  the  average  weekly  wage.  Other 
acts  provide  for  larger  percentages  as  follows :  fifty- 
five  per  cent  in  Indiana,  sixty  per  cent  in  Texas  and 
Hawaii,  sixty-five  per  cent  in  California,  Wisconsin,1 
and  Kentucky,  and  sixty-six  and  two-thirds  per  cent 
in  Massachusetts,  New  York,  and  Ohio  and  under  the 
federal  act.  Three  states,  Oregon,  Washington,  and 
Wyoming  require  the  payment  of  periodical  amounts, 
fixed  with  reference  to  conjugal  state  and  number  of 
children;  in  the  first  two  of  which  the  payment  for  the 
first  six  months  is  computed  by  increasing  the  perma- 
nent total  disability  payments  2  by  fifty  per  cent  with 
a  maximum  limit  of  sixty  per  cent  of  wages.  In 
Wyoming  the  following  schedule  is  in  force :  an  un- 
married workman  receives  fifteen  dollars  per  month, 
a  married  workman  living  with  his  wife,  twenty  dol- 
lars, plus  five  dollars  for  each  child  under  sixteen 
years  of  age,  the  total  not  to  exceed  thirty-five  dollars. 
In  four  states  3  compensation  for  temporary  total  dis- 
ability continues  as  long  as  disability  lasts,  though  in 
three  the  rate  is  reduced  after  a  certain  period  has 

1  In  Wisconsin   100%  is  allowed  if  a  nurse  is  necessary. 

2F.  p.  119. 

8  Colorado,    Nebraska,   Oregon,  and  Washington. 


COMPENSATION  LEGISLATION  119 

elapsed.  In  Colorado,  as  well  as  under  the  federal  act, 
the  payments  are  continued  at  the  original  rate  for 
the  full  duration  of  disability.  All  other  acts  set  a 
definite  maximum  limit  on  the  aggregate  amount  of 
compensation,  on  the  period  of  time  during  which  it 
is  to  be  paid,4  or  on  both.  Limits  are  also  provided 
for  weekly  or  monthly  payments  in  all  but  two  states ; 
the  usual  minimum  being  five  dollars,  and  the  usual 
maximum  ten  dollars,  per  week.  Full  wages  are  paid 
in  several  states  if  the  workman's  earnings  are  below 
the  required  minimum. 

All  acts  which  provide  for  percentage  payments  for 
temporary  total  disability  require  the  same  percent- 
ages to  be  paid  for  permanent  total  disability.  In  ten 
states  benefits  continue  throughout  life  for  disability 
of  this  kind  but  in  two  of  these  at  a  special  rate,5  while 
four  change  the  rate  after  a  certain  period.6  The  re- 

4  Limits  of  amount  vary  from  $1000  to  $5000;  and  of  time,  from 
26  to  500  weeks.     Where  both  limits  are  used  that  one  becomes 
operative  which  is  first  reached. 

5  Oregon  and  Washington,  where  the  following  schedules  are 
in  force,  payments  being  on  a  monthly  basis : — 

Oregon    Washington 

Unmarried $30.00  $20.00 

Having  able-bodied  husband 30.00  15.00 

Having  wife  or  invalid  husband 35.00  25.00 

Widow  or  widower 30.00  20.00 

For  the  last  three  classes  payments  are  increased  by  six  dollars 
in  Oregon  and  by  five  dollars  in  Washington  for  each  child  under 
sixteen,  such  additional  amount  to  be  discontinued  when  the  child 
reaches  that  age.  Total  payments  are  not  to  exceed  fifty  dollars 
in  the  former  state  nor  thirty-five  dollars  in  the  latter. 

6  California  changes  the  rate  from  65  per  cent  to  40  per  cent 
after'  240   weeks ;    Illinois,    from  50  per   cent   of   wages   to  an 
annual  pension  of  8  per  cent  of  total  previous  payments  (mini- 


120  COMPENSATION  INSURANCE 

maining  four  7  pay  the  same  percentage  throughout 
life. 

Much  the  same  limits  to  weekly  and  aggregate  pay- 
ments are  applied  here  as  in  temporary  cases  except 
that  the  aggregate  limits  are  raised  in  some  acts.  Wy- 
oming and  Alaska  provide  for  lump  sum  payments 
varying  from  one  thousand  to  three  thousand  dollars 
in  the  former,  and  from  three  thousand  six  hundred  to 
six.thousand  in  the  latter. 

Partial  Disability  Benefits. — Benefits  for  temporary 
partial  disability  are  generally  computed  by  the  appli- 
cation of  the  percentage  used  in  cases  of  total  disabil- 
ity to  the  loss  in  earning  power  attributable  to  a  com- 
pensable  injury.  This  method  is  used  in  fact  or  in 
principle  wherever  benefits  for  disability  of  this  char- 
acter are  granted.8 

Permanent  partial  disability  (other  than  certain 
specific  injuries)  entitles  the  workman  in  most  states 
to  the  same  benefits  which  he  secures  for  temporary 
partial  disability.  There  are  several  exceptions,  how- 
ever; in  California,  West  Virginia,  and  New  York  and 
under  the  federal  act  payments  are  continued  for  life, 
and  the  acts  of  New  Jersey,  Washington,  and  Wyo- 
ming, which  do  not  provide  for  the  latter  form  of  dis- 
ability, make  provision  for  permanent  partial  cases, 

mum  $10  monthly)  after  the  original  payments  equal  four 
times  average  annual  earnings  or  $3,500;  Montana,  from  50 
per  cent  of  wages  to  $5  per  week  after  400  weeks;  Nebraska, 
from  50  per  cent  to  40  per  cent  after  300  weeks. 

7  Colorado,  New  York,  Ohio,  and  West  Virginia.    The  federal 
act  also  provides  for  payments  throughout  life. 

8  New  Jersey,  Washington,  and  Wyoming  make  no  provision 
for  temporary  partial  disability. 


COMPENSATION  LEGISLATION 

in  the  last  two  states  through  the  requirement  of  lump 
sum  payments. 

Limits  of  various  kinds  and  amounts  are  imposed 
on  partial  disability  benefits  of  the  same  general  char- 
acter as  those  on  total  disability  benefits,  except  that 
the  minimum  weekly  amount  is  omitted  in  most  acts. 

Specific  Permanent  Injury  Schedules. — Following 
the  example  of  New  Jersey,  nearly  every  state  has 
adopted  the  principle  of  granting  benefits  for  certain 
specified  injuries  on  the  basis  of  a  separate  schedule, 
enumerating  the  injuries  and  usually  requiring  the 
payment  of  compensation  for  a  definite  number  of 
weeks  for  each  injury.  The  following  quotation  from 
the  Pennsylvania  act  is  typical  of  schedules  of  this 
sort: 

(c)  For  all  disability  resulting  from  permanent  in- 
juries of  the  following  classes,  the  compensation  shall  be 
exclusively  as  follows: 

For  the  loss  of  a  hand,  fifty  per  centum  of  wages  dur- 
ing one  hundred  and  seventy-five  weeks. 

For  the  loss  of  an  arm,  fifty  per  centum  of  wages  dur- 
ing two  hundred  and  fifteen  weeks. 

For  the  loss  of  a  foot,  fifty  per  centum  of  wages  dur- 
ing one  hundred  and  fifty  weeks. 

For  the  loss  of  a  leg,  fifty  per  centum  of  wages  dur- 
ing two  hundred  and  fifteen  weeks. 

For  the  loss  of  an  eye,  fifty  per  centum  of  wages  dur- 
ing one  hundred  and  twenty-five  weeks. 

For  the  loss  of  any  two  or  more  of  such  members, 
not  constituting  total  disability,  fifty  per  centum  of  wages 
during  the  aggregate  of  the  periods  specified  for  each. 

Unless  the  Board  shall  otherwise  determine,  the  loss  of 
both  hands  or  both  arms,  or  both  feet,  or  both  legs,  or 


COMPENSATION  INSURANCE 

both  eyes,  shall  constitute  total  disability,  to  be  compen- 
sated according  to  the  provisions  of  clause  (a).9 

Amputation  between  the  elbow  and  the  wrist  shall  be 
considered  as  the  equivalent  of  the  loss  of  a  hand,  and 
amputation  between  the  knee  and  ankle  shall  be  consid- 
ered as  the  equivalent  of  the  loss  of  a  foot.  Amputation 
at  or  above  the  elbow  shall  be  considered  as  the  loss  of  an 
arm,  and  amputation  at  or  above  the  knee  shall  be  consid- 
ered as  the  loss  of  a  leg.  Permanent  loss  of  the  use  of  a 
hand,  arm,  foot,  leg,  or  eye  shall  be  considered  as  the 
equivalent  of  the  loss  of  such  hand,  arm,  foot,  leg,  or 
eye. 

This  compensation  shall  not  be  more  than  ten  dollars 
per  week,  nor  less  than  five  dollars  per  week :  Provided, 
That,  if  at  the  time  of  injury  the  employee  receives  wages 
of  less  than  five  dollars  per  week,  then  he  shall  receive  the 
full  amount  of  such  wages  per  week  as  compensation.10 

Compensation  under  these  schedules  is  in  lieu  of  all 
other  compensation  except  in  a  few  states  where  it  is 
treated  as  an  additional  payment. 

In  a  few  states  no  such  schedule  is  inserted  in  the 
act  and  workmen  suffering  injuries  of  this  sort  are 
awarded  compensation  on  the  basis  of  loss  of  earning 
power.  In  California  they  are  covered  by  the  provi- 
sions for  permanent  disability,  which  fix  the  number 
of  weeks  for  which  compensation  payments  will  be 
made  according  to  the  percentage  of  disability. 

The  following  table  gives  examples  of  these  pro- 
visions of  the  California  act: — 


9  A  clause  providing  compensation  for  total  disability. 

10  Pennsylvania  Workmen's  Compensation  Act,  §  306  (c). 


COMPENSATION  LEGISLATION          123 

Percentage  of      Percentage  of  Av.  Period  of 

Disability         Wkly.  Wages  Paid  Compensation 

i  65  4  weeks 


6o 

65 

240            " 

I65 

240            " 

7° 

1  10 

for  life 

100 

(65 

\  40 

240  weeks 
for  life 

A  further  clause  provides  that  "In  determining  the 
percentages  of  permanent  disability,  account  shall  be 
taken  of  the  nature  of  the  physical  injury  or  dis- 
figurement, the  occupation  of  the  injured  employee  and 
his  age  at  the  time  of  such  injury."11  The  actual 
determination  of  the  percentage  of  disability  is  a  func- 
tion of  the  Industrial  Accident  Commission  which  has 
prepared  a  Schedule  for  Rating  Permanent  Disabili- 
ties with  the  aid  of  which  the  percentage  of  disability 
may  be  quickly  computed  for  various  ages,  occupations 
and  injuries. 

Death  Benefits.*2 — If  a  workman  dies  as  a  result 
of  a  compensable  injury  those  dependent  upon  him 
for  support  are  entitled  to  indemnity.  Practically 
every  act  makes  a  distinction  between  total  and  partial 
dependents,  the  latter  usually  receiving  a  smaller  pay- 
ment than  the  former,  and  receiving  such  payment 
only  when  there  are  no  total  dependents.  The  acts 
of  fifteen  states  which  provide  for  the  payment  of  a 

11  Chap.  176,  Laws  of  1913,  §  15. 

12  Oklahoma  makes  no  provision  for  death  benefits. 


COMPENSATION  INSURANCE 

percentage  of  wages  in  case  of  total  disability  grant 
the  same  percentage  to  total  dependents,  regardless 
of  number  or  relationship.  Eight  others,13  one  terri- 
tory, and  the  United  States,  provide  varying  percent- 
ages adjusted  according  to  number  and  relationship 
of  dependents,  while 'three  14  provide  flat  rates,  sim- 
ilarly adjusted.15  Of  the  six  acts  requiring  the  pay- 
ment of  lump  sums  at  death,  only  two,  those  of  Wyo- 
ming and  Alaska,  make  such  an  adjustment.16  A  re- 
cently enacted  law  furnishes  an  excellent  example  of 
payments  adjusted  both  to  number  and  relationship: 

Section  307.  In  case  of  death,  compensation  shall  be 
computed  on  the  following  basis,  and  distributed  to  the 
following  persons: — 

1.  To  the  child  or  children,  if  there  be  no  widow  nor 
widower  entitled  to  compensation,  twenty-five  per  centum 
of  wages  of  deceased,  with  ten  per  centum  additional  for 
each  child  in  excess  of  two,  with  a  maximum  of  sixty 
per  centum,  to  be  paid  to  their  guardian. 

2.  To  the  widow  or  widower,  if  there  be  no  children, 
forty  per  centum  of  wages. 

3.  To  the  widow  or  widower,  if  there  be  one  child, 
forty-five  per  centum  of  wages. 

4.  To  the  widow  or  widower,  if  there  be  two  children, 
fifty  per  centum  of  wages. 

13  La.,  Minn.,  Mont.,  Nev.,  N.  J.,  N.  Y.,  Penna.,  Vt.,  Hawaii. 

14  Ore.,  Wash,  W.  Va. 

15  Payments  in  Oregon  vary  from  $30  to  $50  per  month ;   in 
Washington  and  West  Virginia,  from  $20  to  $35. 

18  Lump  sums  are  paid  to  total  dependents  upon  death  as  fol- 
lows : — in  Arizona,  2400  times  one-half  daily  wages ;  in  Illinois 
4  times  average  annual  earnings ;  in  Kansas,  3  times  average  an- 
nual earnings;  in  New  Hampshire  150  times  average  weekly  earn- 
ings ;  in  Wyoming,  $500  to  $2000. 


COMPENSATION  LEGISLATION          125 

5.  To  the  widow  or  widower,  if  there  be  three  chil- 
dren, fifty-five  per  centum  of  wages. 

6.  To  the  widow  or  widower,  if  there  be  four  or  more 
children,  sixty  per  centum  of  wages. 

7.  If  there  be  neither  widow,  widower,  nor  children, 
then  to  the  father  and  mother,  or  the  survivor  of  them, 
if  dependent  to  any  extent  upon  the  employee  for  sup- 
port at  the  time   of  his  death,  twenty  per  centum  of 
wages. 

8.  If  there  be  neither  widow,  widower,  children,  nor 
dependent  parent,  then  to  the  brothers  and  sisters,  if  actu- 
ally dependent  to  any  extent  upon  the  decedent  for  sup- 
port at  the  time  of  his  death,  fifteen  per  centum  of  wages 
for  one  brother  or  sister,  and  five  per  centum  additional 
for  each  additional  brother  or  sister,  with  a  maximum  of 
twenty-five  per  centum ;  such  compensation  to  be  paid  to 
their  guardian.17 

The  acts  of  four  states,  New  York,  Oregon,  Wash- 
ington, and  West  Virginia,  and  of  the  United  States, 
provide  for  the  continuance  of  benefits  to  a  widow 
or  dependent  widower  until  death  or  remarriage,  and 
the  first  three*  of  these  states  extend  the  privilege  of 
compensation  to  other  dependents  as  long  as  depend- 
ency lasts.  All  others  have  limits  on  death  benefits 
similar  to  those  placed  on  disability  benefits.  It  is  fre- 
quently provided  that  payments  to  a  dependent  child 
shall  continue  until  a  certain  age  is  reached,  varying 
from  fifteen  to  eighteen  years.  Lump  sum  benefits  are 
sometimes  granted  on  remarriage. 

The  expenses  of  burial  are  everywhere  paid,  usually 
in  addition  to  all  other  compensation,  subject  to  limits 

17  Penna.  Workmen's  Compensation  Act,  §  307. 


126  COMPENSATION  INSURANCE 

of  from  $50  to  $200;  these  amounts  including,  in  a 
few  cases,  the  expenses  of  the  last  illness  as  well. 

Medical  and  Surgical  Aid. — All  but  three  18  of  the 
acts  now  in  force  make  some  provision  for  medical 
and  surgical  aid  in  addition  to  other  compensation, 
though  three  19  of  these  extend  such  aid  only  to  the 
expenses  of  the  last  sickness  where  there  are  no  de- 
pendents. Of  the  remaining  acts  the  greater  number 
call  for  aid  in  some  amount  with  money  limits  of  twen- 
ty-five to  three  hundred  dollars  and  time  limits  of  one 
week  to  four  months.  In  a  few  of  these,  cases  requir- 
ing special  treatment  have  a  higher  limit  than  ordinary 
cases.  California  and  Massachusetts,  while  they  set 
a  time  limit  of  ninety  days  and  two  weeks  respectively, 
permit  their  Industrial  Accident  Commissions  to  order 
further  aid  if  required.  Under  the  Connecticut  act 
the  employer  is  obliged  to  furnish  all  necessary  treat- 
ment. "The  employer  .  .  .  shall  provide  a  competent 
physician  or  surgeon  to  attend  the  injured  employee, 
and  in  addition  shall  furnish  such  medical  and  surgi- 
cal aid  or  hospital  service  as  such  physician  or  surgeon 
shall  deem  reasonable,  or  necessary."20  The  federal 
act  makes  provision  similar  to  that  of  Connecticut. 

Commutation  of  Payments. — While  compensation 
must  be  paid  in  periodical  installments  in  most  juris- 
dictions, provision  is  usually  made  for  the  commuta- 
tion of  these  installments  to  a  lump  sum  under  speci- 
fied conditions  or  when  the  administrative  body  con- 
siders it  to  be  in  the  interests  of  justice.  Commuta- 

18  Arizona,  Washington,  and  Wyoming. 

19  Kansas,  New  Hampshire,  and  Alaska. 

20  Connecticut  Workmen's  Compensation  Act,  §  7. 


COMPENSATION  LEGISLATION 

tion  is  frequently  permitted  for  non-residents  and 
those  about  to  remove  from  the  state,  and  also  where 
the  commuted  payments  will  furnish  capital  suffi- 
cient for  entrance  into  some  small  business  enter- 
prise. 

Criticism. — Compensation  payments,  having  as 
their  purpose  the  relief  of  economic  need,  may  be 
judged  by  two  standards,  adequacy,  and  adjustment 
to  varying  degrees  of  need.  The  law  should  provide 
for  compensation  of  sufficient  amount  and  for  its  equi- 
table allotment.  To  the  extent  that  this  is  not  accom- 
plished an  act  may  be  said  to  fail  of  achieving  its  pur- 
pose. Complete  adequacy,  or  the  granting  of  one  hun- 
dred per  cent  of  wages,  is,  of  course,  impossible  be- 
cause of  the  necessity  of  leaving  some  incentive  for  a 
man  to  return  to  wo'rk,  a  necessity  which  must  always 
be  borne  in  mind  when  considering  a  compensation 
schedule. 

There  is  still  considerable  disagreement  regarding 
the  proper  percentage  to  apply  to  the  loss  of  earning 
power.  About  two-thirds  of  the  state  legislatures 
have  declared  themselves  in  favor  of  a  fifty  per  cent 
rate,  while  students  of  social  science  seem  to  favor 
paying  sixty-six  and  two-thirds  per  cent.  One  or- 
ganization has  gone  so  far  as  to  recommend  a  seventy- 
five  per  cent  rate.  The  payment  of  two-thirds  of  the 
loss  of  wages  more  nearly  fulfills  the  purpose  of  a 
workmen's  compensation  law,  but  the  argument  is 
frequently  heard  that  it  would  lead  to  malingery. 
Without  careful  supervision  this  is  probably  true,  but 
with  an  efficient  administrative  bcdy  the  danger  is 
practically  nil.  It  is  fair  to  say  that  the  question  is 


128  COMPENSATION  INSURANCE 

still  a  subject  of  controversy  with  opinion  tending  to- 
ward the  higher  rate. 

Death  benefits  should  not  be  paid,  as  they  are  in  the 
majority  of  states,  regardless  of  the  number  or  char- 
acter of  dependents.  Considerations  of  this  sort  di- 
rectly determine  the  economic  need  created  by  the 
death  of  a  workman  and  a  law  which  requires  the 
same  payments  to  a  sole  survivor  as  to  a  widow  with 
several  children  is  obviously  unjust.  The  Pennsyl- 
vania act,  cited  above,  is  to  be  commended  in  this  re- 
spect, though  a  payment  of  ten  per  cent  to  a  widow  or 
widower  for  each  child  under  eighteen,  with  a  limit 
of  sixty-six  and  two-thirds  per  cent,  would  be  more 
nearly  in  accord  with  justice. 

The  limitation  of  the  aggregate  amount  of  payments 
or  of  the  number  of  weeks  during  which  they  are  to 
continue  is  a  widely  accepted  practice  in  our  legisla- 
tion which  should  be  condemned  without  reserve.  The 
same  reason  exists  for  the  payment  of  compensation 
at  the  end  of  three  hundred  or  five  hundred  weeks 
as  existed  at  the  time  of  the  injury"  or  of  the -death 
of  the  workmen,  and  termination  of  disability  or  of 
dependency  should  alone  operate  as  a  limit  to  pay- 
ments. Compensation  subject  to  other  limits  is  bet- 
ter than  none  and  may  be,  in  many  cases,  the  best 
that  the  legislature  can  be  induced  to  provide ;  but,  on 
economic  grounds,  it  is  indefensible. 

Periodical  installments  are  far  superior  to  lump 
sums  as  a  method  of  payment  of  compensation  bene- 
fits, except  in  special  cases.  Neither  an  ordinary  work- 
man nor  his  dependents  have  the  requisite  judgment 
to  invest  or  expend  properly  a  large  sum,  the  payment 


COMPENSATION  LEGISLATION          129 

of  which  is  likely  to  lead  only  to  extravagance  and  fu- 
ture want.  The  present  popularity  of  life  insurance 
policies  payable  in  installments  is  significant  of  the  ap- 
preciation of  such  tendencies  even  among  the  economi- 
cally more  fortunate  classes. 

The  various  specific  injury  schedules  which  have  been 
adopted  seem  to  be  more  the  product  of  imitation  than 
of  reason,  being  based  in  several  states  on  somewhat 
similar  provisions  in  accident  insurance  policies.  As 
a  measure  of  economic  loss  they  are  thoroughly  inade- 
quate and  it  is  only  necessary  to  point  out  that  the  loss 
of  a  particular  member  has  a  vastly  different  economic 
significance  in  various  occupations  to  .show  that  such 
schedules  are  essentially  unjust.  Contrast,  for  exam- 
ple, the  effect  of  the  loss  of  a  left  hand  on  a  book- 
keeper and  the  effect  of  the  same  loss  on  a  chauffeur. 
Such  injuries  should  be  compensated  on  the  basis  of 
the  proportion  of  disability  which  they  cause. 

Lastly,  the  limits  now  imposed  on  medical  and  sur- 
gical aid  should  be  removed  and  provision  made  for 
such  care  as  is  reasonably  necessary  in  each  case. 
These  limits  are  now  often  removed  in  practice  by  in- 
surance companies  and  employers  who  realize  that 
proper  treatment  of  injured  men  effects  immense  econ- 
omy in  the  payment  of  other  benefits.  For  broader 
but  similar  reasons  the  law  should  require  adequate 
treatment.  This,  as  well  as  other  liberalizing  changes, 
require  efficient  administration  to  guard  against  abuse. 

The  Computation  of  Compensation. — Having  fixed 
upon  average  weekly  wages  as  a  basis  for  the  compu- 
tation of  compensation  payments,  the  next  step  is  to 
provide  a  method  for  ascertaining  the  average  wages 


130  COMPENSATION  INSURANCE 

in  any  given  case.    The  Massachusetts  act  has  a  typical 
provision : 

"Average  weekly  wages"  shall  mean  the  earnings  of 
the  injured  employee  during  the  period  of  twelve  calen- 
dar months  immediately  preceding  the  date  of  injury,  di- 
vided by  fifty-two ;  but  if  the  injured  employee  lost  more 
than  two  weeks'  time  during  such  period,  then  the  earn- 
ings for  the  remainder  of  such  twelve  calendar  months 
shall  be  divided  by  the  number  of  weeks  remaining  after 
the  time  so  lost  has  been  deducted.  Where,  by  reason 
of  the  shortness  of  the  time  during  which  the  employee 
has  been  in  the  employment  of  his  employer,  or  the  nature 
or  terms  of  the  employment,  it  is  impracticable  to  com- 
pute the  average  weekly  wages,  as  above  defined,  regard 
may  be  had  to  the  average  weekly  amount  which,  during 
the  twelve  months  previous  to  the  injury,  was  being 
earned  by  a  person  in  the  same  grade  employed  at  the 
same  work  by  the  same  employer ;  or,  if  there  is  no  person 
so  employed,  by  a  person  in  the  same  grade  employed 
in  the  same  class  of  employment  and  in  the  same  dis- 
trict.21 

A  later  addition  to  the  act  provides  that  "if  it  be 
established  that  the  injured  employee  was  of  such  age 
and  experience  when  injured  that,  under  natural  con- 
ditions, his  wages  would  be  expected  to  increase,  that 
fact  may  be  taken  into  consideration  in  determining 
his  weekly  wages."  22 

In  other  states  a  more  extended  definition  is  fre- 
quently given  and  specific  forms  of  income  are  ex- 
cluded from  the  computation ;  for  example,  money  ad- 

21  Part  V.    §  2. 

22  General  Acts  of  1915,  Chap.  236,  §  i. 


COMPENSATION  LEGISLATION          131 

vanced  for  expenses  incidental  to  employment,  pay- 
ment for  overtime,  board  and  lodging  and  gratuities 
unless  the  money  value  is  fixed  in  the  contract  of  hire. 
Occasionally  the  limits  to  weekly  compensation  are 
expressed  in  terms  of  maximum  and  minimum  wages 
which  may  be  used  in  computation. 

The  Industrial  Commission  of  Wisconsin  has  pub- 
lished a  table  which  shows  the  compensation  payable 
for  total  disability  under  the  Wisconsin  act,  with 
wages  at  various  levels.23  The  method  of  construction 
may  be  shown  by  taking  a  two-dollar  wage  as  an  ex- 
ample : 

Divided 

Times      Equals    Divided    Equals         Of         Equals         by         Equals 
Daily          300        Yearly      by  52      Weekly     which     Weekly  Working     Daily 
Wage        Days       Wage      Weeks      Wage        65%     Compen-  Days  of  Compen- 
sation      Week       sation 

$2.00         300          S6oo  52         $n.54         65          $7-50  6  $1.25 

No  set  rule  can  be  applied  in  all  cases — it  is  neces- 
sary to  leave  considerable  latitude  of  action  to  the 
administrative  body  in  order  to  deal  equitably  with  ex- 
ceptional conditions. 

23  Bulletin  No.  12  of  the  Department  of  Labor  and  Industries  of 
Minnesota  contains  extensive  tables  showing  death  and  disability 
benefits  payable  in  that  state. 


CHAPTER  XI 

WORKMEN'S  COMPENSATION  LEGISLATION  IN  THE 
UNITED  STATES  AND  TERRITORIES   (Continued) 

ADMINISTRATION 

The  definition  of  administration  as  "legislation  in 
action"  1  indicates  the  necessity  of  especially  careful 
consideration  of  the  administrative  provisions  of  a 
compensation  act.  In  order  that  the  ends  for  which 
the  act  is  designed  may  be  achieved  administrative 
machinery  is  necessary,  for,  having  secured  legisla- 
tive expression  of  compensation  principles,  it  is  essen- 
tial that  the  law  be  enforced.  Practical  operation  de- 
termines its  success  or  failure.  To  this  end  the  states 
have  adopted  various  means,  some  creating  new  ad- 
ministrative bodies,  others  relying  on  existing  mech- 
anism. 

Administrative  Commissions. — Twenty-four  states, 
one  territory,  and  the  United  States,  have  adopted  the 
commission  form  of  administration  by  creating  bodies 
which  give  exclusive  attention  to  the  operation  of  the 
compensation  law.  These  bodies  have  various  titles : 
Industrial  Accident  Board,  Workmen's  Compensation 
Commission,  Industrial  Insurance  Commission,  etc., 

1  Commons  and  Andrews,  "Principles  of  Labor  Legislation." 
Chap.  IX  of  this  book  is  an  excellent  treatment  of  the  general 
problems  of  administration. 

132 


COMPENSATION  LEGISLATION          133 

but  the  purposes  of  all  are  the  same.  In  its  usual  form 
the  commission  consists  of  three  or  five  members  with 
their  headquarters  at  the  state  capitol.  Certain  varia- 
tions from  the  ordinary  plan  are  worthy  of  notice;  in 
Iowa  and  West  Virginia  the  administrative  function 
is  vested  in  a  single  commissioner,  in  Connecticut  and 
Kentucky  the  individual  members  of  the  commission 
are  assigned  to  districts,  and  in  California  and  Penn- 
sylvania the  commission  is  assisted  by  referees. 

The  primary  purpose  is  to  put  into  effect  the  provi- 
sions in  the  law  for  compensation  payments  and  to 
see  that  justice  is  done  to  all  parties  concerned.  But 
there  are  certain  secondary  purposes  for  which  a  com- 
mission is  created  and  for  which  it  is  peculiarly 
adapted.  These  are  the  observation  of  the  operation 
of  the  law,  the  compilation  of  statistics,  and  the  ren- 
dering of  reports.  Legislation,  to  be  scientific,  must  be 
based  on  experience  and,  if  experience  is  to  be  of 
any  service,  it  must  be  carefully  compiled  and  prop- 
erly interpreted  and  the  results  placed  before  the 
law-making  body.  When  the  first  compensation  laws 
were  enacted  in  the  United  States  there  were  only  for- 
eign experience  and  the  scattering  and  inadequate  in- 
formation of  a  few  state  labor  departments  as  a  guide. 
Hence  the  laws  contain  many  unavoidable  defects 
which  could  be  appreciated  only  after  the  acts  had 
been  in  operation  for  some  time.  By  a  process  of 
amendment  these  defects  may  be  eliminated  but  ac- 
curate and  apposite  information  is  needed  on  which 
to  base  corrections.  Such  information  is  best  supplied 
by  competent  experts  who  are  in  constant  and  sym- 
pathetic touch  with  developments,  such  as  those  who 
10 


134  COMPENSATION  INSURANCE 

comprise  the  administrative  commissions  which  most 
of  our  states  have  adopted. 

The  Duties  of  the  Commission. — Although  the 
duties  of  commissions  vary  in  detail  the  following 
may  be  considered  typical : 

1.  Reports  of  injuries.     Whenever  an  employee  is 
injured  an  immediate  report  must  be  made  to  the  com- 
mission and  one  or  more  subsequent  reports  showing 
the  extent  and  duration  of  the  injury.     These  reports 
are  used  as  a  basis  for  following  up  individual  cases 
to  see  that  the  law  is  observed  and  for  the  compilation 
of  statistics. 

2.  Approval  of  compensation  agreements.    If  an  in- 
jury is  compensable  the  employer,  or  his  insurer,  and 
the  employee  usually  agree  on  the  amount  of  compen- 
sation payable  and  file  this  agreement  with  the  com- 
mission whose  approval  is  necessary  to  make  it  bind- 
ing. 

3.  Settlement  of  disputes.    When  no  agreement  can 
be  reached  regarding  payment  of  compensation  the 
disputed  points  may  be  taken  to  the  commission  where 
the  usual  procedure  is  to  attempt  to  arrive  at  an  ami- 
cable  settlement   through   arbitration,    a   member   of 
the  commission  and  representatives  of  the  employer 
and  employee  acting  as  arbitrators.     If  an  agreement 
cannot    be    effected    in    this    manner    the    dispute    is 
brought  before  the  full  commission,  which  makes  a 
ruling.      In    California   and   Pennsylvania,    as   noted 
above,   the   commission   is   assisted  by   referees   who 
make   investigations,   assist   the   parties   to   reach   an 
agreement,  and  hear  cases  in  the  first  instance.     If  ap- 
peal is  taken  on  a  question  of  law  the  courts  may  re- 


COMPENSATION  LEGISLATION          135 

view  the  decision  of  the  commission  and  make  a  final 
award. 

The  procedure  before  the  commission  or  its  repre- 
sentatives is  strictly  informal  and  they  are  not  bound 
by  the  "technical  rules  of  evidence"  nor  by  other 
rules  which  are  dictated  by  precedent  or  formality. 
Their  function  is  to  learn  the  facts  of  the  case  in  the 
simplest  and  most  direct  way  and  to  base  their  deci- 
sion on  a  reasonable  interpretation  both  of  the  facts 
and  of  the  law.  They  are  called  upon  to  decide  a  mul- 
titude of  questions  which  may  in  general  be  grouped 
under  the  following  heads:  (a)  Does  an  injury  ex- 
ist? (b)  Is  the  injury  covered  by  the  law?  (c)  If  so, 
what  is  its  extent  and  what  payments  are  due  ? 

4.  Reports  on  operation  of  law.     By  means  of  an- 
nual  reports  and   special  bulletins  which  are  issued 
from  time  to  time  the  commission  keeps  the  public 
and  legislators  informed  of  conditions,  an  educational 
service  of  great  value.     The  commission  is  in  a  posi- 
tion to  perform  this  service  because  of  its  intimacy 
with  the  subject  matter  and  because  of  the  authority 
usually  given  it  to  require  the  filing  of  information 
and  to  make  investigations.     These  reports,  in  their 
most  useful  form,  not  only  contain  statistics  but  pre- 
sent careful  analyses  and  summaries  of  the  work  of 
the  commission  as  well  as  recommendations  for  future 
improvements.2 

5.  Securing  cooperation.     Four  separate  classes  are 
intimately  associated  in  the  operation  of  a  compensa- 
tion law;  employers,  employees,  insurance  companies, 

2  See,  for  example,  the  annual  reports  of  the  Industrial  Acci- 
dent Board  of  Massachusetts. 


136  COMPENSATION  INSURANCE 

and  physicians.  Among  these  classes  opposing  view- 
points frequently  develop  and  the  central  body  is  nec- 
essary to  bring  about  a  greater  degree  of  harmony  and 
a  realization  that  the  interests  of  all  those  concerned 
in  compensation  work  are  mutual,  though  at  times  they 
may  apparently  be  conflicting. 

The  duties  outlined  above  indicate  particular  fea- 
tures of  a  commission's  work  and  suggest  the  reasons 
for  creating  such  a  body.  Eight  states  and  one  terri- 
tory, however,  have  created  no  special  administrative 
machinery,  leaving  the  settlement  of  disputes  to  the 
courts  and  the  collection  of  data  and  making  of  re- 
ports to  the  labor  office  of  the  state. 

Advantages  of  the  Commission  Plan. — From  such 
widespread  adoption  of  the  commission  form  of  ad- 
ministration it  is  evident  that  this  plan  must  have 
decided  advantages  to  offer.  The  greatest  of  its  ad- 
vantages is  found  in  the  expert  character  of  the  com- 
missions. Their  members  devote  their  entire  time  to 
compensation  work  and  under  them  is  centralized  all 
phases  of  the  problem  so  that  each  may  be  treated  in 
relation  to  all  others  and  with  real  consideration  for 
the  economic  purposes  of  the  law.  Judges  in  courts 
of  law,  with  cases  coming  before  them  on  many  un- 
related subjects,  can  seldom  make  any  special  study 
of  compensation  and,  even  where  they  are  able  to  do 
so,  are  likely  to  permit  the  legal  viewpoint  to  over- 
shadow the  economic.  The  commission  is  in  a  better 
position  to  put  into  practice  the  real  purposes  of  the 
law  through  their  knowledge  of  the  inter-relation  of 
its  parts  and  of  the  several  aspects  of  its  operation. 

Another  advantage  of  the  commission  is  a  reduction 


COMPENSATION  LEGISLATION          137 

in  expense  and  delays.  By  means  of  informal  pro- 
cedure and  a  limitation  of  fees,  the  workingman  is 
enabled  to  get  a  hearing  with  little  or  no  expense  and 
to  secure  relatively  prompt  decision  of  his  case,  con- 
siderations which  are  extremely  important  in  the  suc- 
cessful operation  of  a  compensation  law.  Further,  a 
commission  can  make  investigations  on  its  own  initia- 
tive and  can  correct  abuses  and  evasions  of  the  law 
without  waiting  for  a  formal  complaint  and  without 
confining  itself  to  the  questions  which  might  be  brought 
before  it  in  a  particular  case. 

The  duty  of  the  commission  to  report  on  the  opera- 
tion of  the  law  has  already  been  mentioned.  This 
function  is  most  important,  for  it  applies  the  scientific 
methods  of  research  and  weighing  of  results  to  public 
work  and  enables  the  development  of  sound  theory  as 
a  basis  for  future  procedure. 

Disadvantages  of  the  Commission  Plan. — It  may  be 
argued  that  appointed  commissions  entail  a  consider- 
able expense,  that  their  grade  of  efficiency  is  lower 
than  that  of  the  bench  and  that  political  considera- 
tions will  hamper  their  work.  All  of  these  arguments 
have  considerable  weight  but  they  are  not  sufficient 
to  justify  a  legislature  in  leaving  the  administration  of 
a  compensation  law  to  the  courts.  Compensation  is  a 
new  and  intricate  phase  of  public  work  and  a  special- 
ized body  of  men  is  required  to  supervise  efficiently  its 
application. 

MISCELLANEOUS  PROVISIONS 

Burden  of  Cost. — The  burden  of  cost  of  compensa- 
tion is  placed  on  the  employer  as  the  representative 


138  COMPENSATION  INSURANCE 

of  industry  in  all  but  four  states.  In  Oregon  the  em- 
ployer is  ''authorized  and  required"  to  deduct  from 
the  wages  of  each  workman  one  cent  "for  each  day 
or  part  of  a  day"  that  the  workman  is  employed  and 
to  turn  this  collection  over  to  the  state  fund.  In  West 
Virginia  the  employer  is  authorized  but  not  required 
to  deduct  from  wages  ten  per  cent  of  the  premium 
payable  for  insurance  in  the  state  fund.  In  Montana 
and  Nevada  the  employee  may  be  asked  to  contribute 
not  over  one  dollar  per  month  to  a  hospital  fund.3 

General  opinion  is  decidedly  opposed  to  requiring 
the  workmen  to  contribute  to  the  cost  of  compensa- 
tion. His  suffering  and  the  loss  of  a  portion  of  his 
wages  is  a  sufficient  share  in  the  burden  of  industrial 
injuries  and  any  other  contribution  is  contrary  to  the 
best  theory  and  practice.  There  is  some  justification 
nevertheless  in  a  contribution  to  hospital  expenses, 
provided  all  cases  of  illness  and  injury,  industrial  and 
otherwise,  receive  treatment,  but  the  employee's  pay- 
ment should  represent  no  more  than  the  cost  of  car- 
ing for  non-industrial  cases.. 

•/  Compensation  a  Preferred  Claim. — Compensation 
payments  generally  have  the  same  preference  over 
other  claims  as  that  given  to  unpaid  wages  of  labor. 
A  few  states  make  no  provision  for  such  preference, 
though  the  wisdom  of  doing  so  is  obvious. 

J Assignments  and  Exemptions. — In  no  state  are  com- 
pensation payments  subject  to  assignment  nor  may 

3  In  West  Virginia  the  10%  is  deducted  by  employers  in  coal 
mining,  the  largest  industry,  but  the  greater  proportion  of 
employers  in  other  industries  make  no  collection.  In  Nevada 
and  Montana  hospital  agreements  are  general. 


COMPENSATION  LEGISLATION          139 

they  be  attached  or  levied  upon  for  claims  of 
creditors. 

^Accident  Prevention. — It  is  common  but  by  no 
means  universal  to  authorize  or  require  the  commis- 
sion to  promulgate  and  enforce  rules  for  the  installa- 
tion of  safety  devices  and  for  the  conduct  of  employ- 
ees. In  Washington  disobedience  to  a  statute  or  to 
an  order  of  the  commission  entails  a  penalty  on  the 
employer  of  fifty  per  cent  of  the  compensation  award- 
ed, this  amount  to  be  paid  into  the  accident  fund ;  and 
if  the  injured  employee  is  responsible  for  the  removal 
of  a  safeguard  his  compensation  is  reduced  by  ten  per 
cent. 

The  prevention  of  accidents  is  quite  as  important 
as  their  compensation  and  the  encouragement  and  re- 
quirement of  preventive  measures  should  be  developed 
in  harmony  with  the  administration  of  the  compensa- 
tion law.  To  this  end  it  is  wise  to  invest  the  admin- 
istrative commission  with  power  over  the  prevention 
of  accidents  or,  if  that  power  is  given  to  another  de- 
partment, to  provide  for  their  correlation.  Compen- 
sation is  a  palliative  while  prevention  is  a  cure. 

Other  Provisions. — Provisions  are  commonly  in- 
serted in  compensation  laws  to  define  the  liability  of 
an  employer  for  compensation  to  employees  of  a  con- 
tractor and  the  liability  of  a  principal  contractor  to 
employees  of  a  sub-contractor.  The  time  and  man- 
ner of  filing  notices  of  acceptance  or  rejection  of  the 
act,  notices  of  injury,  and  claims  for  compensation 
are  also  usually  specified  and  the  employer  is  usually 
given  the  right  to  demand  a  medical  examination  at 
proper  intervals.  Some  states  specifically  include  or 


140  COMPENSATION  INSURANCE 

exclude  accidents  occurring  outside  of  the  state  from 
the  benefits  of  the  law. 

There  are  various  provisions  other  than  those  al- 
ready mentioned  embodying  rules,  definitions,  and 
technical  points  which  are  necessary  but  not  funda- 
mental. Their  inclusion  in  a  general  summary  of  com- 
pensation principles  is  hardly  warranted.4 

REFERENCES 

Workmen's  Compensation  Laws  of  the  United  States  and 
Foreign  Countries,  1916.  Bulletin  of  the  U.  S.  Bu- 
reau of  Labor  Statistics,  No.  203. 

Digest  of  Workmen's  Compensation  Laws  in  the  United 
States  and  Territories,  with  Annotations,  Revised  to 
December  i,  1915,  and  Supplement,  Revised  to  No- 
vember I,  1916.  Workmen's  Compensation  Pub- 
licity Bureau,  New  York. 

COMMONS  and  ANDREWS.  "Principles  of  Labor  Legisla- 
tion." Harper,  New  York  (1916).  Chapter  IX. 

FISHER,  W.  C.  "The  Field  of  Workmen's  Compensa- 
tion in  the  United  States,"  American  Economic  Re- 
view, V,  pp.  221-278. 

"The  Scope  of  Workmen's  Compensation  in  the 
United  States,"  The  Quarterly  Journal  of  Economics. 
XXX  (November,  1915). 

"Some  Defects  and  Suggested  Changes  in  Work- 
men's Compensation  Laws."  Proceedings  of  the 

4  Provisions  concerning  the  insurance  of  workmen's  compensa- 
tion have  been  omitted  as  they  will  be  considered  in  Part  III. 

The  Workmen's  Compensation  Law  of  New  York  is  con- 
tained in  Appendix  A.  This  law  is  presented  as  illustrative  of 
many  of  the  principles  discussed  in  Chapters  IX,  X,  and  XL 
Careful  study  of  its  provisions  is  advised  in  connection  with 
the  study  of  the  law  of  the  student's  home  state. 


COMPENSATION  LEGISLATION          141 

Conference  on  Social  Insurance  .  .  .  Dec.  5,  to  9, 
1916.  Bulletin  of  the  U.  S.  Bureau  of  Labor  Statis- 
tics, No.  212,  Washington  (1917). 

Standards  for  Workmen's  Compensation  Laws.  Revised 
to  October  I,  1916.  American  Association  for  Labor 
Legislation,  New  York. 

Papers  on  "Merits  and  Demerits  of  Different  Forms  of 
Administration,"  "Compensation  Schedules  of 
Awards,"  and  "Lump  Sum  Settlements,"  Ibid. 

RHODES,  J.  E.  2d.  "Compensation  Administration  and 
Adjustments,"  Modern  Insurance  Problems.  Annals 
of  the  American  Academy  of  Political  and  Social 
Science  (March,  1917),  pp.  273-296. 

Workmen's  Compensation.  American  Labor  Legislation 
Review  (March,  1915). 


CHAPTER  XII 

THE  CONSTITUTIONALITY  OF  WORKMEN'S  COMPEN- 
SATION LAWS 

The  law  of  employer's  liability  is  a  formulation  in 
rules  of  the  economic  responsibility  of  the  employer 
to  the  employee  incident  to  industrial  accidents. 
Workmen's  compensation  laws  constitute  a  set  of 
rules  the  object  of  which  is  to  substitute  a  new  eco- 
nomic responsibility  more  in  accord  with  modern  con- 
ditions. In  making  the  change  a  legislature  is  not  free 
to  enact  any  rules  which  may  appeal  to  it  as  desirable, 
for  all  laws,  to  be  valid,  must  be  constitutional.  They 
must  contain  no  provisions  which  run  counter  to  the 
provisions  of  the  constitution  of  the  United  States 
or  of  the  individual  state.  Final  determination  of 
the  validity  of  a  state  statute  rests  with  the  Supreme 
Court  of  the  United  States,  though  on  questions  in- 
volving the  constitution  of  a  state,  the  decision  of  the 
court  of  last  resort  of  the  particular  state  is  final. 

Workmen's  compensation  laws  have  frequently  been 
attacked  in  the  state  courts  on  grounds  of  .unconstitu- 
tionally and  numerous  opinions  have  been  handed 
down,  in  most  cases  sustaining  the  acts.  Only  four 
cases  have  been  decided  by  the  United  States  Supreme 
Court. 

142 


CONSTITUTIONALITY  143 

COMPULSORY  LAWS 

The  Ives  Case. — The  first  important  decision  on  the 
constitutionality  of  a  workmen's  compensation  law 
was  that  of  the  Court  of  Appeals  of  New  York  in 
Ives  v.  South  Buffalo  Railway  Co.1  Earl  Ives,  a 
switchman,  alleged  that  he  had  been  injured  while  em- 
ployed on  the  railroad  "solely  by  reason  of  a  necessary 
risk  or  danger  of  his  employment"  and  sued  the  rail- 
way company  to  recover  the  compensation  provided  by 
the  compulsory  New  York  act  of  1910  for  such  cases. 
The  defendants  admitted  the.  allegations  of  Ives  but 
argued  that  the  provisions  of  the  compensation  law 
violated  both  the  federal  and  state  constitutions.  Judg- 
ment was  rendered  for  the  plaintiff  by  the  lower 
courts,  but  the  Court  of  Appeals  ruled  in  favor  of 
the  defendant,  declaring  the  law  to  be  repugnant  to 
the  constitutions  of  the  United  States  and  of  New 
York. 

The  New  York  act  of  1910  enumerated  eight  classes 
of  "especially  dangerous"  employments  and  required 
that  all  personal  injuries  from  accidents  occurring  in 
the  course  of  these  employments  should  be  compen- 
sated by  the  employer  according  to  a  fixed  schedule  if 
the  injury  was  in  whole  or  part  contributed  to  by : 

(a)  A  necessary  risk  or  danger  of  the  employment  or 
one  inherent  in  the  nature  thereof;  or 

(b)  Failure    of    the    employer  ...    to    exercise    due 
care,  or  to  comply  with  any  law  affecting  such 
employment. 

J94  N.  E.  431  (March  24,  1911). 


144  COMPENSATION  INSURANCE 

Injuries  resulting  in  any  degree  from  the  "serious  and 
willful  misconduct  of  the  employee"  were  excepted. 
The  statute  further  provided  that  an  employee  might 
bring  suit  in  the  courts  to  enforce  his  right  to  pay- 
ments under  the  act.  It  was  specifically  stated  that  the 
act  was  not  to  affect  the  common  law  rights  of  the  em- 
ployee but  that  its  acceptance,  or  the  initiation  of  pro- 
ceedings to  recover  compensation  under  its  terms, 
should  bar  recovery  at  common  law. 

The  court,  after  a  brief  rehearsal  of  the  economic 
basis  of  compensation  as  explained  by  the  Wainwright 
Commission,  which  drafted  the  bill,  made  the  state- 
ment that: 

Under  our  form  of  government  .  .  .  courts  must  re- 
gard all  economic,  philosophical,  and  moral  theories,  at- 
tractive and  desirable  though  they  may  be,  as  subordi- 
nate to  the  primary  question  whether  they  can  be  molded 
into  statutes  without  infringing  upon  the  letter  or  spirit 
of  our  written  constitutions. 

This  did  not  prevent  the  court  from  voicing  its  con- 
servative fear,  in  another  part  of  the  opinion,  that  the 
arguments  used  to  support  the  compensation  statute 
might  be  carried  further  to  justify  a  compulsory  re- 
distribution of  wealth;  and,  in  connection  with  the 
fact  that  decrees  of  Parliament  are  the  supreme  law 
in  England,  reference  was  made  to  the  "paternalism 
which  logically  results  from  a  universal  employer's 
liability  based  solely  upon  the  relation  of  employer 
and  employee,  and  not  upon  fault  in  the  employer." 

The  power  of  the  legislature  to  abrogate  the  doc- 
trines of  contributory  negligence  and  of  common  em- 


CONSTITUTIONALITY  145 

ployment  was  admitted  by  the  court  but  the  power  to 
modify  the  doctrine  of  assumption  of  risk  was  held 
to  be  limited  by  constitutional  provisions.  The  1910 
law  abrogated  all  three  except  in  the  case  of  accidents 
due  to  the  serious  and  willful  misconduct  of  the  em- 
ployee. 

It  was  argued  that  the  selection  of  certain  specified 
industries  was  contrary  to  the  fourteenth  amendment 
of  the  federal  constitution  which  guarantees  the  equal 
protection  of  the  laws  to  all  citizens  and  that  the 
provisions  for  a  scale  of  compensation  and  for  the 
settlement  of  disputes  denied  the  right  of  trial  by  jury 
which  was  guaranteed  by  the  state  constitution.  The 
classification  of  industries  was  upheld  as  resting  on 
"proper  and  justifiable  distinctions,"  but  no  opinion 
was  given  on  the  latter  question,  as  the  members  of 
the  court  failed  to  agree. 

The  court  then  took  up  the  argument  that  the  new 
statute  deprived  the  employer  of  property  without  due 
process  of  law  and  said  in  part: 

We  conclude,  therefore,  that  in  its  basic  and  vital  fea- 
tures the  right  given  to  the  employee  by  this  statute  does 
not  preserve  to  the  employer  the  "due  process"  of  law 
guaranteed  by  the  constitutions,  for  it  authorizes  the  tak- 
ing of  the  employer's  property  without  his  consent  and 
without  his  fault. 

Considerable  attention  is  devoted  to  the  police  power 
under  which  the  supporters  of  the  law  attempted  to 
justify  it.  That  it  was  considered  to  be  in  no  wise  a 
proper  application  of  the  police  power  is  best  shown 
by  further  quotation  from  the  opinion: 


146  COMPENSATION  INSURANCE 

.  .  .  statutory  provisions  which  are  designed,  in  one 
way  or  another,  to  conserve  the  health,  safety,  or  morals 
of  the  employees,  and  to  increase  the  duties  and  responsi- 
bilities of  the  employer,  or  rules  of  conduct  which  prop- 
erly fall  within  the  sphere  of  the  police  power.  .  .  .  But 
the  new  addition  to  the  labor  law  .  .  .  does  nothing  to 
conserve  the  health,  safety,  or  morals  of  the  employees, 
and  it  imposes  upon  the  employer  no  new  or  affirmative 
duties  or  responsibilities  in  the  conduct  of  his  busi- 
ness. .  .  .  Under  this  law,  the  most  thoughtful  and  care- 
ful employer,  who  has  neglected  no  duty,  and  whose 
workshop  is  equipped  with  every  possible  appliance  that 
may  make  for  the  safety,  health,  and  morals  of  his  em- 
ployees, is  liable  in  damages  to  any  employee  who  hap- 
pens to  sustain  injury  through  an  accident. 

The  court  goes  on  to  say  that  there  is 

...  a  vital  distinction  between  legislation  which  im- 
poses upon  an  employer  a  legal  duty  for  the  failure  to 
perform  which  he  may  be  penalized  or  rendered  liable  in 
damages,  and  legislation  which  makes  him  liable  notwith- 
standing he  has  faithfully  observed  every  duty  imposed 
upon  him  by  law.  .  .  .  But  when  an  industry  or  calling 
is  per  se  lawful  and  open  to  all,  and  therefore  beyond 
the  prohibitive  power  of  the  legislature,  the  right  of  gov- 
ernmental control  is  subject  to  such  reasonable  enact- 
ments as  are  directly  designed  to  conserve  health,  safety, 
comfort,  morals,  peace,  and  order.  .  .  .  For  the  failure 
of  an  employer  to  observe  such  regulations  the  legislature 
may  unquestionably  enact  direct  penalties  or  create  pre- 
sumptions of  fault  which,  if  not  rebutted  by  proof,  may 
be  regarded  as  sufficient  evidence  of  liability  for  dam- 
ages. That  must  be  the  extreme  limit  of  the  police  power, 
for  just  beyond  is  the  constitution,  which,  in  substance 


CONSTITUTIONALITY  147 

and  effect,  forbids  that  a  citizen  shall  be  penalized  or  sub- 
jected to  liability  unless  he  has  violated  some  law  or  has 
been  guilty  of  some  fault. 

Since  the  act  was  held  to  deprive  the  employer  of 
property  without  due  process  of  law  and  not  to  be 
justified  under  the  police  power  it  was  declared  void 
and  the  judgment  of  the  lower  court  reversed.  This 
case  has  been  considered  at  some  length  as  it  treats 
very  fully  the  negative  arguments  on  the  subject  of  the 
constitutionality  of  compulsory  workmen's  compensa- 
tion and  indicates  the  line  of  attack  used  in  later  cases. 

The  Clausen  Case.2 — In  this  case,  decided  by  the 
Supreme  Court  of  the  State  of  Washington,  six 
months  after  the  Ives  case,  the  constitutionality  of  a 
compulsory  workmen's  compensation  act  was  again  be- 
fore the  court.  An  action  was  brought  to  compel  the 
state  auditor  to  issue  a  warrant  on  the  treasurer  in 
payment  for  material  purchased  by  the  Industrial  In- 
surance Department  which  had  been  created  by  the 
act.  The  auditor  refused  to  issue  the  warrant  on  the 
ground  that  the  act  was  unconstitutional  and  that 
therefore  he  would  not  be  justified  in  recognizing  an 
obligation  incurred  under  its  terms.  The  New  York 
and  the  Washington  laws  were  alike  in  principle,  ex- 
cept that  the  former  provided  only  for  a  right  of  re- 
covery while  the  latter  required  the  employer  to  pay 
periodical  amounts  into  an  "accident  fund"  from  which 
injured  employees  were  to  receive  compensation  pay- 
ments. 

2 State  ex  rel.  Davis-Smith  Co.  v.  Clausen,  State  Auditor  (Sept. 
27,  1911),  117  Pac.,  noi. 


148  COMPENSATION  INSURANCE 

The  law  was  challenged  on  four  grounds :  first,  that 
it  violated  the  state  and  federal  constitutions  by  de- 
priving employers  of  property  without  due  process  of 
law;  second,  that  it  violated  both  constitutions  as  it 
did  not  apply  equally  to  all  persons  and  corporations; 
third,  that  it  violated  the  state  constitution  which  pro- 
vides that  all  property  shall  be  taxed  according  to  its 
value  in  money  and  that  taxation  shall  be  equal  and 
uniform;  and  fourth,  that  it  violated  the  state  consti- 
tution by  abrogating  the  right  of  trial  by  jury. 

Little  comment  is  necessary  concerning  the  last 
three  contentions.  The  court  decided  that  the  classifi- 
cation of  industries  for  the  purposes  of  the  law  was 
not  class  legislation,  that  the  contributions  to  the  state 
fund  were  not  taxes  in  the  sense  implied  by  the  con- 
stitution, and  that  the  elimination  of  the  right  of  ac- 
tion for  injury  left  the  right  of  trial  by  jury  nothing 
on  which  to  operate  though  there  was  ample  prec- 
edent for  denying  trial  by  jury  through  regulatory 
laws. 

On  the  question  of  due  process  of  law  the  Washing- 
ton court  reached  a  conclusion  opposed  to  that  of  the 
New  York  justices.  The  fundamental  difference  lay 
in  the  attitude  of  the  two  bodies,  the  former  showing 
unwillingness  to  apply  constitutional  restraints  and  a 
disposition  to  give  the  police  power  a  broad  interpreta- 
tion, while  the  latter  put  the  burden  of  proof  on  the 
proponents  of  the  act. 

Counsel  for  the  auditor  argued  that  the  act  created 
a  liability  without  fault  and  took  the  property  of  one 
employer  to  pay  the  obligations  of  another.  But  the 
court  held  that : 


CONSTITUTIONALITY  149 

These  conditions  do  not  furnish  an  absolute  test  of 
the  validity  of  the  act.  In  the  statute  books  of  the 
several  States  are  many  statutes  held  constitutional  by 
the  courts  where  liability  is  created  without  fault,  and 
where  the  property  of  one  person  is  taken  to  pay  the 
obligations  of  another,  and  this  where  no  compensation 
is  made  to  the  person  who  is  thus  made  liable  or  whose 
property  is  thus  taken,  other  than  perhaps  the  bestowal 
upon  him  of  some  privilege.  The  test  of  the  validity  of 
such  a  law  is  not  found  in  the  inquiry:  Does  it  do  ob- 
jectionable things  ?  But  it  is  found  rather  in  the  inquiry  : 
Is  there  no  reasonable  ground  to  believe  that  the  public 
safety,  health,  or  general  welfare  is  promoted  thereby? 
...  In  other  words,  the  test  of  a  police  regulation,  when 
measured  by  this  clause  of  the  Constitution,  is  reasonable- 
ness, as  contradistinguished  from  arbitrary  or  capricious 
action. 

The  opinion  then  cites  various  examples  of  analo- 
gous statutes,  many  of  which  the  New  York  court  had 
held  to  rest  on  other  grounds  than  those  on  which  it 
was  sought  to  justify  the  compensation  act.  A  case 
involving  the  Oklahoma  depositors'  guaranty  law  was 
quoted  with  particular  approval.3  This  law  provides 
that  state  banks  shall  contribute  a  percentage  of  their 
deposits  to  a  state  fund  from  which  depositors  in  in- 
solvent banks  are  to  be  indemnified.  It  was  upheld  as 
constitutional  by  the  Supreme  Court  of  the  United 
States  and  its  provisions  offer  an  almost  exact  analogy 
to  the  Washington  compensation  law. 

Further  quotation  shows  the  extreme  liberality  with 
which  the  court  viewed  the  police  power  and  its  re- 

8  Noble  State  Bank  v.  Haskell,  31  Sup.  Ct.,  186. 
11 


150  COMPENSATION  INSURANCE 

luctance  to  interfere  with  enactments  of  the  legisla- 
ture: 

If,  therefore,  the  act  in  controversy  has  a  reasonable 
relation  to  the  protection  of  the  public  health,  morals, 
safety,  or  welfare,  it  is  not  to  be  set  aside  because  it  may 
incidentally  deprive  some  person  of  his  property  with- 
our  fault  or  take  the  property  of  one  person  to  pay  the 
obligations  of  another.  To  be  fatally  defective  in  these 
respects,  the  regulation  must  be  so  utterly  unreasonable 
and  so  extravagant  in  nature  and  purpose  as  to  capri- 
ciously interfere  with  and  destroy  private  rights  .  .  .  the 
courts  are  slow  to  inquire  into  the  mere  wisdom  of  a 
statute  .  .  .  the  courts  will  interfere  only  when  there  can 
be  no  two  opinions  as  to  the  mischievous  and  evil  tend- 
encies of  the  act.  The  act  in  question  here  was  framed 
by  a  commission  composed  of  men  eminent  for  their  abil- 
ity, .  .  .  was  selected  by  the  legislature  from  among  a 
number  of  proposed  acts  .  .  .  the  court  can  not  do  other- 
wise than  put  it  to  the  test  of  practice. 

Referring  to  the  Ives  case  the  court  said : 

The  act  the  court  there  had  in  review  is  dissimilar  in 
many  respects  to  the  act  before  us,  and  is  perhaps  less 
easily  defended  on  economic  grounds.  The  principle  em- 
bodied in  the  statutes  is,  however,  the  same,  and  it  must 
be  conceded  that  the  case  is  direct  authority  against  the 
position  we  have  here  taken.  We  shall  offer  no  criticism 
of  the  opinion.  We  will  only  say  that  notwithstanding 
the  decision  comes  from  the  highest  court  of  the  first 
State  of  the  Union,  and  is  supported  by  a  most  persuasive 
argument,  we  have  not  been  able  to  yield  our  consent  to 
the  view  there  taken. 


CONSTITUTIONALITY  151 

Supreme  Court  Decisions. — As  a  result  of  the  deci- 
sion in  the  Ives  case  the  State  of  New  York  adopted 
an  amendment  to  its  constitution,  effective  January 
i,  1914,  permitting  the  enactment  of  a  compulsory 
compensation  law.4  A  new  compulsory  law  was  en- 
acted in  December,  1913,  and  reenacted  in  1914,  to 
take  effect  July  i,  1914.  This  act  was  sustained  by 
the  Court  of  Appeals  of  New  York  as  conforming  to 
the  provisions  of  both  state  and  federal  constitutions 
in  Jensen  v.  Southern  Pacific  Co.5  and  in  New  York 
Central  R.  R.  Co.  v.  White.6  The  latter  was  ap- 
pealed to  the  United  States  Supreme  Court  and  a  deci- 
sion sustaining  the  act  rendered  on  March  6,  191 7.7 
In  its  opinion,  the  court  held  that  the  legislature  had 
full  power  to  change  the  law  of  negligence,  though 
opinion  was  reserved  on  the  question  whether  the  leg- 
islature "could  abolish  all  rights  of  action  on  the  one 
hand,  or  all  defenses  on  the  other,  without  setting  up 
something  adequate  in  their  stead."  The  question 
considered  was  "whether  the  method  of  compensation 
that  is  established  as  a  substitute  transcends  the  limits 
of  permissible  state  action."  In  approving  the  method 
prescribed  by  the  law  the  court  said: 

.  .  „  there  is  the  loss  of  earning  power ;  a  loss  of  that 
which  stands  to  the  employee  as  his  capital  in  trade. 
This  is  a  loss  arising  out  of  the  business,  and,  however 

4  Constitution  of  the  State  of  New  York,  Art.  I,  Sec.  19.    Sim- 
ilar constitutional  provision  has  been  made  in  Arizona,  Califor- 
nia, Ohio,  Pennsylvania,  Vermont,  and  Wyoming. 

5  215  N.  Y.  514. 
8  216  N.  Y.  653- 

7  No.  320— October  Term,  1916. 


152  COMPENSATION  INSURANCE 

it  may  be  charged  up,  is  an  expense  of  the  operation, 
as  truly  as  the  cost  of  repairing  broken  machinery  or  any 
other  expense  that  ordinarily  is  paid  by  the  employer. 
Who  is  to  bear  the  charge  ?  It  is  plain  that,  on  grounds 
of  natural  justice,  it  is  not  unreasonable  for  the  State, 
while  relieving  the  employer  from  responsibility  for  dam- 
ages measured  by  common  law  standards  and  payable  in 
cases  where  he  or  those  for  whose  conduct  he  is  answer- 
able are  found  to  be  at  fault,  to  require  him  to  contribute 
a  reasonable  amount,  and  according  to  a  reasonable  and 
definite  scale,  by  way  of  compensation  for  the  loss  of 
earning  power  incurred  in  the  common  enterprise,  irre- 
spective of  the  question  of  negligence,  instead  of  leaving 
the  entire  loss  to  rest  where  it  may  chance  to  fall — that 
is,  upon  the  injured  employee  or  his  dependents.  Nor 
can  it  be  deemed  arbitrary  and  unreasonable,  from  the 
standpoint  of  the  employee's  interest,  to  supplant  a  sys- 
tem under  which  he  assumed  the  entire  risk  of  injury  in 
ordinary  cases,  and  in  others  had  a  right  to  recover  an 
amount  more  or  less  speculative  upon  proving  facts  of 
negligence  that  often  were  difficult  to  prove,  and  substi- 
tute a  system  under  which  in  all  ordinary  cases  of  acci- 
dental injury  he  is  sure  of  a  definite  and  easily  ascer- 
tained compensation,  not  being  obliged  to  assume  the 
entire  loss  in  any  case  but  in  all  cases  assuming  any  loss 
beyond  the  prescribed  scale. 
. 

The  fact  that  the  act  creates  liability  without  fault 
was  held  not  to  be  a  ground  for  declaring  it  unconsti- 
tutional and  it  was  further  supported  as  a  legitimate 
exercise  of  the  police  power.  The  requirement  that 
the  employer  secure  the  payment  of  compensation  by 
taking  out  insurance  or  by  giving  proof  of  financial  re- 
sponsibility, accompanied  by  a  deposit  of  securities, 


CONSTITUTIONALITY  153 

was  upheld  as  a  "permissible  regulation  in  aid  of  the 
system.^ 

Another  opinion  was  handed  down  on  the  same  day 
in  the  case  of  Mountain  Timber  Co.  v.  The  State  of 
Washington,8  sustaining  the  Washington  act.9  It  was 
pointed  out  that  the  principles  involved  were  the  same 
as  those  in  the  New  York  case  as  far  as  employees 
were  concerned  but  that  additional  requirements  were 
made  on  employers,  who  were  compelled  to  contribute 
to  an  accident  fund  from  which  payments  of  compen- 
sation were  to  be  made. 

After  stating  that  the  act  could  not  be  held  to  ex- 
clude the  right  of  trial  by  jury  because  the  abolition 
of  the  right  of  recovery  in  ordinary  cases  left  nothing 

to  be  tried  by  jury,  the  court  said: 

» 

The  only  serious  question  is  that  which  is  raised  under 
the  "due  process  of  law"  and  "equal  protection"  clauses 
of  the  Fourteenth  Amendment.^  It  is  contended  that 
since  the  Act  unconditionally  requires  employers  in  the 
enumerated  occupations  to  make  payments  to  a  fund  for 
the  benefit  of  employees,  without  regard  to  any  wrong- 
ful act  of  the  employer,  he  is  deprived  of  his  property, 
and  of  his  liberty  to  acquire  property,  without  compen- 
sation and  without  due  process  of  law.  It  is  pointed  out 
that  the  occupations  covered  include  many  that  are  private 
in  their  character,  as  well  as  others  that  are  subject  to 
regulation  as  public  employments,  and  it  is  argued  that 
with  respect  to  private  occupations  (including  those  of 
plaintiff  in  error)  a  compulsory  compensation  act  does 
not  concern  the  interests  of  the  public  generally,  but 

8  75  Wash.  581;  No.  13— October  Term,  1916  (U.  S.). 
'  Four  justices  dissenting. 


154  COMPENSATION  INSURANCE 

only  the  particular  interests  of  the  employees,  and  is  un- 
duly oppressive  upon  employers  and  arbitrarily  interferes 
with  and  restricts  the  management  of  private  business 
operations. 

Further: 

Whether  this  legislation  be  regarded  as  a  mere  exercise 
of  the  power  of  regulation,  or  as  a  combination  of  regula- 
tion and  taxation,  the  crucial  inquiry  under  the  Four- 
teenth Amendment  is  whether  it  clearly  appears  to  be 
not  a  fair  and  reasonable  exertion  of  governmental  power, 
but  so  extravagant  or  arbitrary  as  to  constitute  an  abuse 
of  power.  All  reasonable  presumptions  are  in  favor  of 
its  validity,  and  the  burden  of  proof  and  argument  is 
upon  those  who  seek  to  overthrow  it.  In  the  present  case 
it  will  be  proper  to  consider:  (i)  Whether  the  main 
object  of  the  legislation  is,  or  reasonably  may  be  deemed 
to  be,  of  general  and  public  moment,  rather  than  of  pri- 
vate and  particular  interest,  so  as  to  furnish  a  just  occa- 
sion for  such  interference  with  personal  liberty  and  the 
right  of  acquiring  property  as  necessarily  must  result 
from  carrying  it  into  effect.  (2)  Whether  the  charges 
imposed  upon  employers  are  reasonable  in  amount,  or, 
on  the  other  hand,  so  burdensome  as  to  be  manifestly 
oppressive.  And  (3)  whether  the  burden  is  fairly  dis- 
tributed, having  regard  to  the  causes  that  give  rise  to 
the  need  for  the  legislation. 

Applying  these  principles  it  was  decided  that  com- 
pensation was  "of  sufficient  public  moment  ...  to  be 
administered  through  state  agencies"  and  that  the  bur- 
den on  industry  was  not  excessive.  The  exclusive 
compulsory  state  fund  principle  was  upheld  in  the  fol- 
lowing terms : 


CONSTITUTIONALITY  155 

...  In  the  absence  of  any  particular  showing  of  er- 
roneous classification — and  there  is  none — the  evident 
purpose  of  the  original  act  to  classify  the  various  occupa- 
tions according  to  the  respective  hazard  of  each  is  suffi- 
cient answer  to  any  contention  of  improper  distribution 
of  the  burden  amongst  the  industries  themselves  .  .  .  we 
are  unable  to  discern  any  ground  in  natural  justice  or 
fundamental  right  that  prevents  the  State  from  imposing 
the  entire  burden  upon  the  industries  that  occasion  the 
losses. 

We  are  clearly  of  the  opinion  that  a  State  .  .  .  may 
require  that  these  human  losses  shall  be  charged  against 
the  industry,  either  directly  ...  or  by  publicly  adminis- 
tering the  compensation  and  distributing  the  cost  among 
the  industries  affected  by  means  of  a  reasonable  system 
of  occupation  taxes. 

We  are  unable  to  find  that  the  Act,  in  its  general  fea- 
tures, is  in  conflict  with  the  Fourteenth  Amendment. 


These  decisions  establish  the  constitutionality  of  the 
compulsory  principle  so  far  as  the  federal  constitu- 
tion is  concerned.  The  divided  opinion  on  the  Wash- 
ington case,  however,  leaves  the  constitutionality  of 
a  compulsory  exclusive  state  fund  somewhat  in  doubt. 

ELECTIVE  LAWS 

The  decision  in  the  Ives  case  led  to  the  passage  of 
elective  laws  in  many  states  to  dodge  the  constitu- 
tional question.10  Such  laws  have  been  attacked  on 

10  For  an  explanation  of  methods  of  election  see  p.  104  ff. 


156  COMPENSATION  INSURANCE 

the  ground  that  the  alternatives  presented  are  dis- 
criminatory and  that  in  practical  effect  they  amount  to 
a  deprivation  of  property  without  due  process  of  law. 
These  contentions  have  failed  of  support  jn  the  high- 
est court  of  every  state  except  Kentucky  where  the 
original  elective  act,  which  provided  for  a  presump- 
tion of  election  and  which  abrogated  the  common-law 
defenses  for  employers  who  rejected  the  law,  was  de- 
clared unconstitutional.11  The  United  States  Supreme 
Court  has  passed  on  two  elective  laws  in  the  cases 
of  Jeffrey  Mfg.  Co.  v.  Blagg,12  and  Howkins  v. 
Bleakly  and  Garst.13  In  the  former  case  the  only  ques- 
tion considered  was  whether  the  provision  of  the  Ohio 
law  limiting  its  application  to  employers  with  five  or 
more  employees  was  justifiable  classification.  It  was 
decided  that  such  classification  was  within  the  power 
of  the  legislature. 

The  latter  case,  involving  the  Iowa  elective  law  and 
decided  on  the  same  day  as  those  involving  the  consti- 
tutionality of  the  New  York  and  Washington  com- 
pulsory laws,  brought  up  the  whole  question  of  the 
validity  of  the  principle  of  presumptive  election  com- 
bined with  the  removal  of  common  law  rights  in  case 
of  rejection.  The  reasoning  of  the  court  in  the  other 
two  cases  applied  a  -fortiori  to  this  case  and  the  opin- 

11  Kentucky  State  Journal  v.  Workmen's  Compensation  Board, 
170  S.  W.  1166.     Leading  cases  for  the  contrary  view  are:     In 
re  Opinion  of  Justices,  (Mass.)  96  N.  E.,  308;  Borgnis  et  al  v. 
The  Falk  Co.,   (Wise.)    133  N.  W.  209;  State  ex  rel  Yaple  -v. 
Creamer,  85  Ohio  St.  349;  Middleton  v.  Texas  Power  and  Light 
Co.,  (Tex.)  185  S.  W.  556. 

12  235  U.  S.  571- 

13  No.  35 — October  Term,  1916. 


CONSTITUTIONALITY  157 

ion  leaves  no  doubt  of  the  constitutionality  of  the  elec- 
tive principle. 

REFERENCES 

The  cases  cited  in  this  chapter  and  the  additional  cita- 
tions which  they  contain  are  the  best  sources  for  further 
study. 


PART  III 

EMPLOYERS'  LIABILITY  AND  WORKMEN'S 
COMPENSATION  INSURANCE 


CHAPTER  XIII 

THE  THEORY  OF  INSURANCE  AS  APPLIED  TO  EM- 
PLOYERS' LIABILITY  AND  WORKMEN'S  COM- 
PENSATION. 

Insurance,  from  the  viewpoint  of  most  people,  is  an 
institution  which  provides  an  opportunity  for  securing 
themselves  against  financial  loss  of  many  kinds  by 
the  payment  of  a  stated  annual  sum  proportioned  to 
the  extent  of  the  security.  To  secure'  themselves 
against  loss  by  fire  they  pay  fire  insurance  companies 
an  annual  premium,  in  consideration  of  which  the 
companies  will  indemnify  them  for  any  damage  by 
fire  to  the  property  insured,  not  exceeding  the  amount 
stated  in  the  policy.  To  secure  their  families  against 
loss  of  their  income  through  death  they  make  similar 
payments  to  a  life  insurance  company.  Practically 
every  variety  of  financial  loss  may  be  prepared  for  in 
this  manner. 

When  the  policyholder  pays  his  premium  to  the  in- 
suring company  and  receives  in  return  a  guarantee 
against  loss  to  the  extent  of  the  sum  named  in  the 
policy,  he  has  relieved  himself  of  a  risk  and  has 
brought  certainty  into  his  affairs  where  before  uncer- 
tainty existed.  But  it  might  seem  that  the  insurance 
company,  which  has  taken  over  the  risk,  has  placed  it- 
self in  a  more  uncertain  position  by  adding  to  the 


162  COMPENSATION  INSURANCE 

possible  losses  which  it  may  be  called  upon  to  in- 
demnify— ^a  service  for  which  the  premium  might  ap- 
pear disproportionately  small.  As  a  matter  of  fact 
the  addition  of  a  new  risk,  with  the  payment  of  a 
scientifically  calculated  premium,  increases  the  cer- 
tainty with  which  the  affairs  of  the  company  may  be 
conducted,  though  not  in  so  simple  a  fashion  as  is  the 
case  with  the  individual  who  pays  the  premium.  The 
insurance  company  is  able  to  assume  additional  risks 
with  increasing  certainty  by  reason  of  the  application 
in  its  business  of  the  theory  of  probability  as  applied 
to  large  groups  of  risks.  To  comprehend  the  insur- 
ance business  in  its  fundamentals  it  is  necessary  to 
understand  this  theory  on  which  it  is  founded. 

THE  THEORY  OF  PROBABILITY 

The  use  of  the  theory  of  probability  is  based  on  the 
reasoned  conviction  that  a  knowledge  of  the  past 
is  a  sufficient  guide  to  events  of  the  future;  that,  given 
the  same  conditions,  we  may  expect  the  same  results. 
According  to  this  doctrine,  if  one  desires  to  predict 
the  results  of  certain  present  conditions,  it  is  only  nec- 
essary to  learn  what  results  have  already  been  pro- 
duced by  exactly  similar  conditions.  But  exactly  cor- 
responding conditions  are  difficult  or  impossible  to  find 
and,  were  they  essential  to  the  operation  of  the  theory, 
little  practical  use  could  be  made  of  it.  It  is  possible, 
however,  by  the  accumulation  of  a  large  number  of 
cases,  to  secure  conditions  which,  as  a  whole,  approxi- 
mate those  of  the  past  and  whose  results  may  be  ex- 
pected to  correspond  with  past  results. 


THEORY  OF  INSURANCE  163 

Accuracy  of  the  Theory. — The  accuracy  of  any  pre- 
diction based  on  the  theory  of  probabilities,  or  the  rela- 
tive approximation  of  theoretical  and  actual  experi- 
ence, depends  on  three  factors,  (i)  the  degree  of 
correspondence  between  the  two  sets  of  conditions, 
(2)  the  accuracy  of  the  data,  and  (3)  the  number  of 
cases  considered  in  each  set. 

The  use  of  industrial  accident  statistics  to  determine 
probable  future  accide'nt  rates  will  serve  as  an  ex- 
ample of  the  influence  of  the  first  two  factors.  Sup- 
pose that  the  accident  rate  for  the  past  three  years 
in  cotton  factories  averaged  sixty-five  per  one  thou- 
sand employees  per  year.  Suppose  further  that  dur- 
ing the  coming  year  many  new  devices  for  the  preven- 
tion of  accidents  are  installed,  and  that  more  careful 
attention  is  given  to  the  reporting  of  accidents. 
Knowing  these  facts,  may  we  consider  the  average  of 
the  past  three  years  a  reliable  index  to  the  number  of 
accidents  during  the  coming  year  ?  Evidently  not,  for 
the  conditions  given  differ ;  in  the  past  there  were  not 
the  same  facilities  for  the  prevention  of  accidents,  and 
figures  based  on  past  conditions  could  be  used  only 
to  indicate  a  maximum  rate  which  the  better  ecjuipped 
factories  will  probably  not  attain.  But  there  is  also 
an  improvement  in  methods  of  accident  reporting 
which  suggests  that  the  statistics  of  the  last  three  years 
were  probably  inaccurate.  More  careful  reporting 
may  bring  in  accounts  of  accidents  which  before  would 
have  passed  unnoticed  and  the  apparent  increase  from 
this  source  may  offset  the  tendency  of  the  rate  to  de- 
crease as  a  result  of  safety  work.  For  statistics  to  be 
of  the  greatest  service  for  the  prediction  of  future 


164  COMPENSATION  INSURANCE 

events  the  influence  of  new  elements  must  be  reduced 
to  a  minimum,  or  that  influence  itself  be  made  a  sub- 
ject of  prediction  by  the  introduction  of  other  statis- 
tics showing  its  probable  effect. 

An  experiment  undertaken  and  described  by  Dr. 
Bruce  D.  Mudgett  is  an  excellent  illustration  of  the 
influence  of  the  number  of  cases  considered: 

An  ordinary  copper  cent  was  flipped  three  hundred 
times  and  the  results,  whether  heads  or  tails  up,  were 
recorded  for  each  ten  throws.  If  the  probable  experience 
had  agreed  absolutely  with  the  actual,  the  results  would 
have  shown  five  throws  heads  and  five  throws  tails  for 
each  ten  trials.  The  actual  results  are  recorded  herewith : 

RESULTS  OF  EACH  100  TRIALS  IN  GROUPS  OF  TEN 

Heads    8 — 2 — 6 — 4 — 3 — 4 — 3 — 5 — 6 — 4  =  45 


First  100  trials 


Second  100  trials 


Third  100  trials 


Tails  2—8—4—6—7—6—7—5—4—6  =  55 

Heads  5 — 6 — 5 — 5 — 8 — 5 — 6 — 6 — 2 — 5  =  53 

Tails  5—4—5—5—2—5—4—4—8—5  =  47 

Heads  7 — 5 — i — 5 — 5 — 6 — 7 — 5 — 5 — 6  =  52 

Tails  3 — 5 — 9 — 5 — 5 — 4 — 3 — 5 — 5 — 4  =  48 


The  table  shows  that  in  thirty  trials  of  ten  throws  each 
the  actual  experience  coincided  with  the  probable  in 
eleven  cases,  that  in  two  instances  heads  appeared  eight 
times  out  of  ten,  and  in  one  case  only  once.  These  re- 
sults in  groups  of  ten  may  be  combined  into  groups  of 
twenty,  thirty,  fifty,  one  hundred,  or  in  a  single  group  of 
three  hundred,  and  comparisons  may  then  be  made  of  the 
fluctuations  in  those  respective  groups.  By  this  arrange- 
ment the  original  data  assume  the  form  shown  on  page 
165.  In  this  table  the  data  are  arranged  in  fifteen 
groups  of  twenty  throws  each,  ten  groups  of  thirty,  six 
of  fifty,  three  of  one  hundred,  and  a  single  group  of  three 


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166  COMPENSATION  INSURANCE 

hundred  throws  and  the  number  of  times  the  coin  fell 
heads  or  tails  is  shown  for  each  group.  The  important 
fact  to  be  considered  is  the  relation  between  the  probable 
and  the  actual  experience  in  each  grouping  of  the  data. 
For  instance,  in  twenty  throws  the  probability  is  that 
heads  will  appear  ten  times,  but  the  figures  show  that  in 
one  case  this  result  occurred  thirteen  times  and  once  only 
six ;  in  thirty  throws  heads  appeared  as  many  as  eighteen 
times  in  two  instances  and  as  few  as  eleven  the  same 
number  of  times.  The  following  brief  table  shows  the 
maximum  and  the  minimum  number  of  times  the  coin 
turned  heads  up  in  any  single  trial  of  the  specified  number 
of  throws: — 

FLUCTUATIONS  IN  NUMBER  OF  TIMES  HEADS 

Maximum  NumberMinimum  Number 

In  Groups  of™.  Times  Heads  Times  Heads 

Times  Tried  . 

Appeared  Appeared 


10  throws 

30 

8 

i 

20    " 

15 

13 

6 

30   " 

to 

18 

ii 

50   " 

6 

29 

22 

100    " 

3 

53 

45 

300  " 

i 

150 

150 

If  these  data  are  now  reduced  to  the  form  of  percent- 
ages the  results  can  be  more  readily  compared,  for  the 
amount  of  the  fluctuations  will  then  have  a  common  basis. 
It  is  understood  that  the  probability  of  the  coin  falling 
heads  up  is  y2  and  this  will  be  represented  by  fifty  per 
cent.  The  variation  of  the  actual  percentage  from  fifty 
per  cent  will  therefore  be  the  measure  of  the  variation. 
The  table  presented  herewith  gives  the  results  obtained : 


THEORY  OF  INSURANCE  167 

PERCENTAGE  OF  TIMES  HEADS  UP 


In  Groups  of 

Maximum 
per  cent 

Minimum 
per  cent 

10 

80 

IO 

20 
30 
50 

65 
60 

58 

30 
36.7 
44 

IOO 

53 

45 

300 

50 

50 

This  table  furnishes  the  basis  for  an  important  gen- 
eralization with  reference  to  the  accuracy  of  the  theory 
of  probability.  It  shows  that  where  the  coin  was  thrown 
ten  times  the  results  varied  from  a  minimum  of  ten  per 
cent  to  a  maximum  of  eighty  per  cent;  where  twenty 
throws  were  made  the  variation  was  less,  viz.,  from  thirty 
to  sixty-five  per  cent ;  and  that  as  the  number  of  throws 
increased  the  variation  became  smaller  and  smaller  and 
the  percentage  of  times  heads  appeared  approached  fifty, 
the  true  probable  percentage.  That  the  three  hundred 
throws  resulted  in  exactly  one  hundred  and  fifty  heads 
must  be  regarded  as  an  accident ;  but  it  can  be  said  with 
equal  certainty  that  it  would  be  impossible  out  of  any 
three  hundred  purely  chance  throws  to  get  as  many  as 
eighty  per  cent  or  as  few  as  ten  per  cent  to  fall  heads 
up.  The  generalization  referred  to  above  is  as  follows : 
Actual  experience  may  show  a  variation  from  the  true 
"probable"  experience  but  as  the  number  of  trials  is  in- 
creased this  variation  decreases ;  and  if  a  very  great  num- 
ber of  trials  were  taken  the  actual  and  the  probable  ex- 
perience would  coincide.  Concretely,  if  the  coin  were 
flipped  ten  million  times  and  it  were  a  pure  chance  which 


168  COMPENSATION  INSURANCE 

way  it  would  fall,  the  actual  results  would  be  so  near 
five  million  times  heads  that  the  difference  would  be 
negligible.  This  generalization  is  called  the  law  of  aver- 
age. This  law  is  fundamental  to  all  insurance.  Premium 
rates  are  based  on  probable  losses  and  will  not  accurately 
measure  the  risk  unless  the  actual  experience  approxi- 
mates the  probable.  That  this  approximation  shall  be 
realized  it  is  at  all  times  necessary  to  deal  with  a  suffi- 
ciently large  number  of  cases  to  guarantee  that  great 
fluctuations  in  results  will  be  eliminated,  i.  e.,  to  insure 
the  operation  of  the  law  of  average.1 

It  is  to  be  noted  that  this  generalization  regarding 
the  constancy  of  large  numbers  is  applicable  to  the 
group  of  cases  from  which  statistical  data  have  been 
secured  and  also  to  the  group  about  which  it  is  desired 
to  make  predictions  for  the  future.  Both  groups  must 
be  sufficiently  large  to  secure  the  operation  of  aver- 
ages if  accurate  results  are  to  be  obtained. 


APPLICATION  OF  THE  THEORY  OF  PROBABILITY  TO 
THE  INSURANCE  OF  EMPLOYERS'  LIABILITY 
AND  WORKMEN'S  COMPENSATION 

Every  employer  is  subject  to  the  risk  of  being 
obliged  to  compensate  his  employees  for  injuries, 
under  the  terms  either  of  the  law  of  employers'  lia- 
bility or  of  a  workmen's  compensation  act.  If  he  de- 

1Mudgett,  "The  Measurement  of  Risk  in  Life  Insurance/' 
Chapter  XI  in  "Life  Insurance,  a  Textbook,"  by  Dr.  S.  S.  Hueb- 
ner.  Dr.  Mudgett's  discussion  of  "The  Science  of  Life  Insur- 
ance" in  Part  II  of  this  book  gives  the  reader  a  clear  exposi- 
tion of  the  possibilities  of  the  application  of  probabilities  to  past 
experience  where  the  data  are  accurate  and  sufficient. 


THEORY  OF  INSURANCE  169 

nies  compensation  he  may  be  put  to  the  expense  and 
trouble  of  defending  himself  in  court  or  before  an 
administrative  commission,  besides  satisfying  any 
'award  which  may  be  made.  Naturally,  the  assump- 
tion of  these  risks  by  a  third  party  is  a  distinct  service 
to  the  employer,  since  it  relieves  him  of  the  uncer- 
tainty entailed  by  their  existence  and  permits  him  to 
devote  all  of  his  attention  to  other  problems,  and  he 
will  be  willing  to  pay  for  the  service  in  proportion  to 
the  importance  which  he  attaches  thereto.  It  is  for  the 
performance  of  such  a  service  that  insurance  organiza- 
tions have  been  formed  and  it  is  to  the  employer's 
willingness  to  pay  for  the  service  that  they  owe  their 
existence. 

The  primary  problem  which  confronts  the  manage- 
ment of  an  insurance  organization  is  that  of  quoting  a 
price  for  its  service.  The  premium  rate,  as  the  price 
for  insurance  services  is  designated,  must  be  sufficient 
to  cover  all  losses,  pay  all  expenses  and,  in  the  case  of 
stock  companies,  yield  a  margin  of  profit.  On  the 
other  hand,  it  must  be  low  enough  to  induce  employers 
to  transfer  their  risk  to  the  organization  and,  in  the 
interests  of  justice,  must  not  be  excessive  and  must 
discriminate  between  industries  and  employers  accord- 
ing to  the  relative  burden  assumed  by  the  insurance 
carrier.  In  fine,  a  measure  of  the  risk  assumed  is 
necessary  in  the  interests  of  both  parties  to  the  con- 
tract of  insurance. 

The  insurer  finds  such  a  measure  in  past  experience 
and  applies  it  to  a  given  risk  in  accordance  with  the 
laws  of  probability,  bearing  in  mind  the  necessity  of 
homogeneous  groups,  of  accurate  data,  and  of  a  broad 


170  COMPENSATION  INSURANCE 

exposure.  Suppose,  for  example,  that  during  the  past 
three  years  employers  in  the  boot  and  shoe  industry 
have  had  an  average  expense  on  account  of  liability 
for  injuries  to  their  employees  of  twenty  cents  per 
one  hundred  dollars  of  payroll  per  year.  Suppose 
that,  during  the  coming  year,  circumstances  affecting 
the  occurrence  of  injuries,  their  severity,  and  liability 
for  damages  are  not  changed.  An  employer,  in  whose 
plant  average  conditions  obtain,  desires  a  quotation 
of  a  premium  rate  for  the  assumption  of  his  liability 
risk.  The  insurer  can  add  to  the  "loss  cost"  of  twenty 
cents  an  amount  for  administrative  and  acquisition 
expenses,  unforeseen  contingencies,  and  profit,  and 
quote  a  rate.  Supposing  these  additions  to  total  forty 
per  cent  of  the  final  premium  the  rate  in  this  case 
would  be  thirty-three  and  one-third  cents  per  one  hun- 
dred dollars  of  payroll  per  year. 

The  receipts  in  premiums  from  this  employer  may 
not  cover  the  disbursements  made  necessary  by  the 
assumption  of  his  risk,  but  the  receipts  from  all  em- 
ployers should  cover  all  disbursements  and  leave  a 
reasonable  profit.  It  is  because  of  their  ability  to 
combine  risks  that  the  insurance  company  can  safely 
assume  a  risk  which  it  would  be  folly  for  the  indi- 
vidual employer  to  carry.  The  employer  can  provide 
for  the  securing  of  accurate  data  and  may  have 
homogeneous  groups,  but  only  in  exceptional  cases 
are  his  groups  large  enough  to  bring  into  play  the  law 
of  average.  This  is  the  peculiar  function  of  the  pro- 
fessional insurance  carrier.2 

2  It  is  true  that  some  of  our  large  corporations  are  in  a  posi- 
tion, because  of  their  size,  to  become  successful  "self-insurers" 


THEORY  OF  INSURANCE  171 

Practical  Qualifications. — In  the  application  of  the 
theory  of  probability  to  the  business  of  insurance 
many  difficulties  are  encountered.  It  is  often  neces- 
sary to  quote  rates  before  sufficient  experience  has  de- 
veloped. In  many  classes  of  risks  conditions  change 
so  rapidly  that  statistics  of  the  past  lose  some  or  all 
of  their  value  as  a  basis  for  estimates  of  future  hap- 
penings. Again,  certain  classes  are  too  small  in  extent 
to  furnish  a  true  average. 

Difficulties  of  this  sort  are  met  in  two  ways ;  by  the 
exercise  of  judgment  in  allowing  for  probable  inac- 
curacies, and  by  accumulating  a  fund  which  may  be 
drawn  upon  to  meet  unexpected  disbursements.  Some- 
times judgment  is  used  in  quoting  rates  for  a  given 
risk  by  making  use  of  the  statistics  of  losses  on 
analogous  risks,  sometimes  an  estimate  of  the  effect 
of  changed  conditions  will  be  applied  to  accumulated 
statistical  experience  with  the  type  of  risks  in  ques- 
tion. Judgment  was  a  particularly  large  factor  in 
the  quotation  of  employers'  liability  insurance  rates; 
it  is  still  a  factor  of  importance  in  rates  for  the  insur- 
ance of  workmen's  compensation. 

The  contingency  reserve  or  surplus  is  an  essential 
feature  of  any  kind  of  insurance  where  statistics  are 
not  a  thoroughly  reliable  guide  to  the  future.  Such 
funds  are  very  necessary  in  the  conduct  of  liability  and 
compensation  insurance,  in  which  there  are  still  many 
statistical  problems  to  be  solved  and  in  which  the  ac- 
cumulation of  experience  covers  neither  sufficient  risks 

and  attain  accurate  results  in  the  application  of  the  theory  of 
probability  to  their  past  experience.  Such  cases  are,  however, 
unusual. 


172  COMPENSATION  INSURANCE 

nor  a  sufficient  period  of  time  to  be  considered  thor- 
oughly reliable. 

REFERENCES 

WILLETT,  A.  H.  "Economic  Theory  of  Risk  and  Insur- 
ance," Columbia  University  Press.  New  York 

(1906). 

MUDGETT,  BRUCE  D.  'The  Measurement  of  Risk  in  Life 
Insurance,"  Chap.  XI  in  S.  S.  Huebner,  "Life  In- 
surance," Appleton,  New  York  (1915),  pp.  119-129. 


CHAPTER  XIV 
METHODS  OF  INSURANCE 

Self -insurance. — The  term  self-insurance  is  usually 
applied  to  the  practice  of  employers  who  do  not  shift 
their  risk  of  loss  to  an  insurance  organization.  The 
term  is  a  misnomer  unless  the  business  in  which  the 
employer  is  engaged  is  sufficiently  extensive  to  produce 
dependable  average  results  and  unless  a  sufficient  fund 
is  accumulated  actually  to  insure  the  payment  of 
claims.  Where  these  conditions  do  not  obtain  the 
employer  is  merely  "carrying  his  own  risk,"  the  very 
opposite  of  insurance. 

The  employer,  in  refusing  to  shift  his  risk  of  loss, 
is  moved  by  a  desire  to  save  expense.  If  he  carries 
his  own  risk  he  will  not  be  obliged  to  contribute  to 
the  costs  of  maintaining  an  insurance  organization. 
Further,  his  payments  of  losses  will  reflect  conditions 
in  his  plant  and  he  will  retain  for  himself  any  savings 
from  accident  prevention.  He  will,  however,  be  sub- 
ject to  the  embarrassment  of  unusually  large  losses 
and  to  the  trouble  and  expense  of  adjusting  claims  and 
administering  the  payment  of  benefits. 
•To  the  employee  the  possible  disadvantages  of  "self- 
insurance"  are  very  great,  so  great  that  it  is  not  per- 
mitted under  the  laws  of  six  states.  The  state  does 
not  maintain  the  same  careful  supervision  of  the 

173 


174  COMPENSATION  INSURANCE 

solvency  of  industrial  corporations  as  of  insurance 
carriers,  and  the  workman,  the  payment  of  whose  com- 
pensation is  dependent  upon  the  financial  strength  of 
his  employer,  is  left  without  recourse  in  the  event  of 
bankruptcy.  The  employer  has  also  a  direct  interest 
in  reducing  the  amount  of  compensation  payments  and 
may  discriminate  against  workmen  with  slight  phys- 
ical defects  or  who  have  families.  The  same  interest 
may  result  in  efforts  to  avoid  the  payment  of  just 
claims  or  to  secure  agreement  to  inadequate  settle- 
ments. 

Types  of  Insurance  Organisations. — Two  general 
types  of  organization  have  engaged  in  the  insurance 
of  employers'  liability  and  workmen's  compensation, 
the  stock  company  and  the  mutual  association.  The 
two  forms  differ  fundamentally  in  their  objects  and 
in  the  control  of  their  operation.  The  stock  company 
is  organized  by  a  group  of  individuals  who  contribute 
their  capital  and  control  the  management  of  the  com- 
pany. In  return,  they  receive  interest  on  their  capital 
and  any  profits  which  the  company  may  make,  unless 
the  venture  is  unsuccessful,  when  they  must  share  the 
losses  to  the  extent  of  their  contributions  of  capital. 
Mutuals  are  cooperative  organizations  of  the  policy- 
holders  whose  risks  are  insured  and  who  control  the 
affairs  of  the  company  and  share  such  profits  or  losses 
as  may  result.  Employers'  liability  insurance  was 
first  written  by  stock  companies  and  the  greater  part 
of  this  business  has  always  been  carried  by  them,  al- 
though two  of  the  mutuals  which  are  now  engaged  in 
insuring  liability  and  compensation  risks  began  busi- 
ness under  the  old  liability  laws,  one  of  them  as  early 


METHODS  OF  INSURANCE  175 

as  1887.  Both  of  these  companies  are  of  the  pure 
mutual  type.  With  the  spread  of  workmen's  com- 
pensation we  find  a  considerable  growth  in  the  mutual 
insurance  field  and  a  differentiation  of  types  based  on 
the  mutual  principle  so  that  now  there  exist  not  only 
the  old  type  of  pure  mutuals  but  also  mixed  mutuals, 
inter-insurance  exchanges,  and  state  funds.1  This 
last  insurance  carrier  differs  from  other  mutuals  in 
being  operated  by  the  state  while  the  first  three  owe 
their  inception  to  private  initiative  and  are  managed 
by  private  individuals  for  their  own  ends.  They  may 
accordingly  be  called  private  mutuals  to  distinguish 
them  from  the  state  funds. 

Insurance  Requirements. — The  various  states,  in 
enacting  compensation  laws,  have  followed  diverse 
principles  regarding  provision  for  insurance  of  the 
compensation  obligation.  In  eighteen  states  the  re- 
quirement is  made  that  the  employer  insure  in  a 
licensed  insurance  carrier  or  satisfy  the  administrative 
body  of  his  financial  ability  to  carry  his  own  risk — 
in  some  of  these  states  the  option  is  granted  of  insur- 
ing or  filing  a  bond.  Seven  states  simply  require  that 
the  employer  make  compensation  payments  as  required 
in  the  act,  permitting  him  to  carry  insurance  or  not 

1  The  term  pure  mutual  is  used  to  designate  a  corporate  insur- 
ance organization  managed  by  salaried  officials  who  are  appointed 
by  a  board  of  directors,  which  in  turn  is  elected  by  the  policy- 
holders.  A  mixed  mutual  is  similar  to  a  stock  company  in  or- 
ganization but  dividends  to  stockholders  are  limited,  any  excess 
earnings  above  a  fixed  percentage  being  returned  to  policy-hold- 
ers. An  inter-insurance  exchange  is  managed  by  an  attorney-in- 
fact  who  represents  each  of  the  members  and  who  receives  a 
percentage  of  the  premium  for  his  services. 


METHODS  OF  INSURANCE  177 

as  he  sees  fit.  Six  make  it  obligatory  on  all  employ- 
ers to  insure  with  some  recognized  carrier,  while 
one  provides  only  for  proof  of  financial  responsibility 
or  the  filing  of  an  acceptable  bond.  The  accompany- 
ing map  indicates  the  provisions  in  individual  states.2 

Methods  of  Insurance  Permitted. — While  one-half 
of  the  states  have  made  no  special  provision  for  the 
insurance  of  workmen's  compensation,  leaving  the 
field  to  existing  liability  companies  and  to  private  initi- 
ative in  forming  new  organizations,  the  remainder 
have  created  new  agencies  for  the  exclusive  purpose 
of  assuming  the  liability  created  by  their  workmen's 
compensation  acts.  These  new  agencies  have  assumed 
two  forms,  the  specially  created  mutual  which  owes  its 
existence  to  the  state  but  which  is  operated  under 
private  management,3  and  the  state  fund  which  is 
operated  on  the  mutual  plan  by  state  officials.  Of 
these  states,  seven,  including  the  three  which  have 
adopted  the  specially  created  but  privately  man- 
aged mutual,  permit  competition  by  private  companies, 
while  six  provide  that  the  state  fund  shall  be  the  sole 
carrier  of  this  form  of  insurance.4  Map.  No.  3  shows 
the  methods  pursued  in  particular  states.5 

In  the  following  discussion  each  variety  of  insur- 

2  Page  176. 

3  In  Kentucky  the  state  is  represented  by  three  of  fifteen  di- 
rectors. 

4  In  Ohio  and  West  Virginia  private  companies  write  work- 
men's compensation  insurance  by  assuming  the  risk  which  the 
employer  has  first  elected  to  carry  himself.     It  was  the  evident 
intention  of  the  laws,  however,  to  exclude  private  companies  from 
this  field. 

5  Page  178. 


METHODS  OF  INSURANCE  179 

ance  carrier  will  be  described,  its  advantages  and  dis- 
advantages considered,  and  conclusions  presented  in 
so  far  as  experience  in  this  branch  of  insurance  war- 
rants. Since  the  field  of  competition  between  differ- 
ent types  of  companies  is  limited  almost  entirely  to 
compensation  insurance  and  since  the  same  principles 
and  practices  apply  to  both  employers'  liability  and 
compensation  business  the  statistics  and  illustrations 
used  will  be  taken  largely  from  experience  under  the 
newer  form. 

THE  STOCK  COMPANY 

Characteristics. — The  principal  characteristic  of  a 
stock  company  and  the  feature  from  which  it  takes 
its  name  is  the  issuance  of  stock  as  evidence  of  owner- 
ship and  in  return  for  capital  contributed  by  the  stock- 
holders. This  capital,  which  the  law  requires  the  com- 
pany to  keep  unimpaired,  serves  as  the  basis  of  opera- 
tions and,  combined  with  any  surplus  which  the  stock- 
holders may  have  contributed  or  which  may  have  ac- 
cumulated in  the  course  of  business,  represents  the 
financial  interest  of  the  stockholders  and  the  financial 
backing  as  security  for  creditors.  In  consideration  of 
their  services  in  advancing  capital  the  stockholders  be- 
come the  owners  of  the  company  and  as  such  are  en- 
titled to  a  pro-rata  participation  in  the  payment  of 
dividends.  The  management  of  the  company  is  super- 
vised by  the  board  of  directors  who  are  elected  by  the 
stockholders,  and  is  in  active  charge  of  salaried  offi- 
cials, appointed  by  the  board  to  operate  the  company 
in  the  interests  of  the  stockholders. 

It  is  the  practice  of  stock  companies  to  charge  a 


180  COMPENSATION  INSURANCE 

definite  premium  to  the  policyholder  for  the  risk  as- 
sumed. If  losses  and  expenses  exceed  the  amount  of 
premiums  collected  the  company  must  bear  the  extra 
burden;  if  premiums  are  more  than  sufficient  to  meet 
losses  and  expenses,  the  excess  is  held  as  surplus  or 
distributed  in  the  form  of  dividends. 

History  and  Present  Position  of  Stock  Companies. 
— Before  workmen's  compensation  was  adopted  in  the 
United  States  the  business  of  insuring  employers 
against  liability  for  accidents  to  their  employees  was 
carried  on  almost  wholly  by  stock  companies,  only  a 
very  small  proportion  of  the  total  business  being  car- 
ried by  mutuals.  With  the  advent  of  compensation 
the  proportions  have  changed  and,  while  the  stock 
companies  still  carry  about  eighty-five  per  cent  of 
the  business  written  by  private  companies,  there  has 
been  great  activity  in  the  organization  of  mutuals  dur- 
ing the  last  five*  years.  The  state  funds  have  also 
written  a  considerable  amount  of  compensation  insur- 
ance, although  the  stock  companies  continue  to  com- 
mand a  major  share  of  the  premiums  in  states  where 
competition  is  permitted,  receiving,- during  1915,  com- 
pensation premiums  amounting  to  $31,348,758. 

Of  the  premiums  collected,  an  average  of  about 
forty  per  cent  is  required  to  meet  the  expenses  of 
conducting  the  business,  the  remainder  being  devoted 
to  the  payment  of  losses,  including  allowance  for  re- 
serves.6 Any  amount  still  remaining  after  the  pay- 
ment of  losses  is  considered  as  underwriting  profit 
and  may  be  carried  to  surplus  or  paid  out  in  the  form 

6  See  Chap.  XXI. 


METHODS  OF  INSURANCE  181 

of  dividends.  If  losses  total  more  than  the  propor- 
tion of  the  premium  which  is  allotted  to  them  the 
deficit,  or  underwriting  loss,  must  be  met  out  of  other 
funds.7 

Arguments  for  Insurance  in  Stock  Companies. — i. 
Undoubtedly  the  advantage  of  insurance  in  stock  com- 
panies which  has  greatest  weight  is  the  definiteness  of 
the  transaction.  By  the  payment  of  a  known  per- 
centage of  his  payroll  the  insured  is  guaranteed  com- 
plete protection  against  loss,  regardless  of  the  ade- 
quacy of  the  premiums  collected.  Of  course,  if  the 
insurance  company  has  insufficient  assets  to  meet  the 
payment  of  losses  the  policyholder  is  not  fully  pro- 
tected, but  careful  regulation  by  state  officials  and  high 
legal  standards  of  solvency  reduce  the  danger  of  this 
event  to  a  minimum.  The  insured  may  well  feel  that 
a  contract  with  a -reliable  stock  company  relieves  him 
of  all  necessity  for  worry  regarding  liability  for  in- 
juries to  his  employees. 

2.  The  security  offered  by  a  stock  company  is  en- 
hanced by  the  capital  fund  which  it  is  required  to  hold 
and  which  is  available  for  the  satisfaction  of  claims 
if  other  sources  fail.  The  amount  of  this  capital  is 
carefully  regulated  by  state  law  and  it  must  be  kept  un- 
impaired if  the  company  is  to  continue  in  business.  A 
further  security  lies  in  the 'business  interests  of  the 
owners  of  the  company  who  have  contributed  capital 
in  the  expectation  of  receiving  dividends.  Since  divi- 
dends cannot  be  paid  until  all  losses  and  expenses  have 

7  It  should  be  remembered  that  receipts  from  investment  income 
and  accretions  may  provide  the  company  with  sufficient  funds  to 
more  than  offset  an  underwriting  loss. 
13 


182  COMPENSATION  INSURANCE 

been  met,  there  is  constant  pressure  on  the  manage- 
ment to  collect  sufficient  premiums  to  provide  for 
profits  and  to  keep  the  company  in  a  prosperous  con- 
dition. 

3.  Another  argument  frequently  advanced  in  favor 
of  stock  company  insurance  is  based  on  the  experience 
in  the  business  accumulated  through  many  years  of 
liability  underwriting.  It  should  be  remembered  that 
experience  in  compensation  insurance  is  necessarily 
limited  to  the  five  years  during  which  there  has  been 
occasion  for  it.  Therefore  claims  of  greater  efficiency 
and  stability  because  of  experience  must  rest  on  the 
analogy  between  the  practice  of  liability  and  of  com- 
pensation insurance,  and  on  the  presumption  that,  in 
general,  the  older  business  organization  justifies  the 
greater  confidence.  It  is  also  to  be  noted  that  this 
field  of  insurance  has  been  developed  recently,  only 
eleven  of  the  twenty-seven  domestic  stock  companies 
now  operating8  having  been  organized  prior  to  1900. 
The  following  table  indicates  developments  along  this 
line : — 

Date  of  Organization  No.  of  Companies 


1870-1870   " 

I 

1880-1889   "   

I 

1890-1899   "    

7 

1900-1904            

7 

IQO^-IQOQ    " 

6 

Ay^j  ir7wy 

8  Dec.  31,  1915  (as  listed  in  the  Insurance  Year  Book  for  1916. 
Except  where  otherwise  noted  further  figures  used  in  this  chap- 
ter will  be  from  the  same  source).  Six  foreign  companies  also 
transact  this  business  through  United  States  branches. 


METHODS  OF  INSURANCE  183 

Date  of  Organization  No.  of  Companies 

1910-1914  inclusive  .......  .  ............      6 


Total  ............................  27 

4.  The  extensive  territory  over  which  ,a  stock  com- 
pany usually  does  business  gives  it  a  wide  exposure 
and  promotes  diversification  of  risk,  two  factors  which 
make  for  more  accurate  operation  of  averages  and 
hence  contribute  to  the  stability  and  efficiency  of  the 
corporation  by  reducing  fluctuations  in  disbursements. 

Arguments  against  Insurance  in  Stock  Companies. 
—  The  objections  to  stock  company  insurance  arise 
both  from  the  fundamental  purpose  of  stock  organiza- 
tions and  from  the  methods  in  general  use  among  them 
which  express  themselves  in  the  form  of  a  higher  net 
premium  cost  to  the  policyholder. 

1.  The  stock  company  is,  of  course,  operated  in  the 
interests  of  the  stockholders  and  their  desire  is  to  se- 
cure as  large  a  net  profit  as  possible.    This  profit  must 
be  contributed  by  the  insured  in  the  form  of  premiums. 
Although  the  extra  cost  entailed  by  profit-taking  may 
be  offset  by  superior  service  or  by  economies  in  other 
directions,  it  must,  in  itself,  be  considered  a  disadvan- 
tage. 

2.  Another    item    which    contributes    to    a    larger 
premium  is  that  of  acquisition  expense,  which  con- 
sumes 17.5%  of  the  premium  and  which  is  due  to  the 
general  practice  of  soliciting  risks  through  agents  and 
brokers   who   receive   commissions   in   proportion   to 
premiums  written.    This  element  of  cost  may  be  justi- 


184  COMPENSATION  INSURANCE 

fied  provided  the  agent  or  broker  serves  the  insured 
properly  by  advising  him  in  the  choice  of  a  company 
and  the  reduction  of  hazard,  and  provided  he  exercises 
discretion  in  choosing  risks  for  the  company.  At  pres- 
ent such  services  are  somewhat  in  the  realm  of  the 
ideal. 

3.  It  is  argued  that  the  very  extent  of  a  stock  com- 
pany's business  is  a  disadvantage.  It  forces  the  com- 
pany to  act  through  agents  who  are  not  in  close  per- 
sonal touch  with  the  home  office  and  tends  to  prevent 
careful  supervision  of  risks.  Such  supervision  as  is 
exercised  involves  considerable  cost  because  of  the  dis- 
tances inv61ved.  These  conditions  might  occasion  a 
larger  loss  ratio,  larger  expenses  of  management,  or 
both. 

THE  MUTUAL 

Characteristics. — The  mutual  insurance  organiza- 
tion is  an  association  made  up  of  policyholders  for  the 
purpose  of  assuming  their  individual  risks.  It  differs 
from  the  stock  company  in  the  fundamentals  of  its 
organization,  since  the  policyholders  control  the  man- 
agement and  are  the  owners,  each  policyholder's  par- 
ticipation being  measured  by  the  size  of  his  premium. 
The  nature  of  mutual  insurance  may  be  most  clearly 
explained  by  the  statement  that  the  insured  transfers 
his  risk  to  an  organization  of  which  he  is  a  member. 
In  view  of  his  membership  he  is  entitled  to  any  profits 
which  may  accrue  and  must  contribute  to  the  payment 
of  any  obligations  which  the  company  finds  itself  un- 
able to  meet  from  premiums.  Policyholders  receive 
profits  and  pay  assessments  in  proportion  to  the 


METHODS  OF  INSURANCE  185 

amount  of  premiums  which  they  pay,  but  liability  for 
assessments  is  usually  limited  to  an  amount  equal  to 
the  original  premium. 

Mutuals  are  often  limited  along  geographical  or 
trade  lines,  being  organized  to  write  insurance  in  a 
single  state,  or  in  a  single  industry  or  group  of  indus- 
tries, often  those  of  a  non-hazardous  nature.  Where 
such  limitations  obtain  a  company  represents  more  of 
the  cooperative  spirit,  and  relations  among  its  mem- 
bers are  more  personal.  Some  mutuals,  however,  re- 
semble the  stock  companies  in  the  extent  of  their  busi- 
ness and  the  impersonal  methods  of  their  management. 
The  advantages  of  mutual  organization  are  most  evi- 
dent in  connection  with  a  preferred  class  of  risks  and 
it  is  among  employers  whose  establishments  are  in  the 
low  hazard  classifications  that  it  has  been  most  de- 
veloped. 

History  and  Present  Position. — Of  the  forty-three 
mutual  companies  doing  business  December  31,  1915, 
only  three  were  organized  prior  to  1912  and  only  two 
date  from  the  employers'  liability  period.9  The  enact- 
ment of  workmen's  compensation  laws  has  given  a 
great  impetus  to  the  formation  of  mutuals  for  the  pur- 
pose of  securing  compensation  insurance  at  a  lower 
cost,  and  nearly  all  such  companies  now  in  operation 
are  devoted  to  this  line. 

Mutuals,  at  present,  write  but  a  small  proportion  of 
the  total  of  compensation  insurance  and  their  future 
position  must  remain  a  matter  of  conjecture  until  more 
experience  has  developed.  It  is  evident  from  the  or- 

9  One  of  these  was  organized  in  1887,  the  other  in  1907. 


186  COMPENSATION  INSURANCE 

ganizing  activity  of  the  past  four  years  that  the  mutual 
idea  will  be  thoroughly  tried  out. 

Arguments  for  Mutual  Insurance. — i.  The  object 
and  chief  advantage  of  mutuals  is  the  furnishing  of 
insurance  at  a  lower  cost  than  in  stock  companies. 
This  object  has  been  attained  in  the  past  because  of 
certain  features  of  the  mutual  which  make  for 
economy.  In  the  first  place  the  acquisition  expense 
is  considerably  lower,  as  mutuals  make  a  practice  of 
paying  no  commissions  and  effect  a  saving  in  this  item 
of  from  ten  to  fifteen  per  cent  of  the  premium.  Sec- 
ondly, the  item  of  profit  is  entirely  eliminated  by  the 
very  nature  of  the  mutual  plan. 

2.  The  policyholders,  through  their  membership  in 
the  company,  have  control  of  its  affairs  through  their 
right  to  vote  at  meetings  and  to  elect  directors,  who  * 
are  usually  large  policy  holders  and  who  are,  there- 
fore, directly  interested  in  efficient  management. 

3.  If  the  risks  are  limited  to  a  given  locality  or  to 
certain  trades  the  mutual  has  the  advantage  of  being 
able  to  keep  them  under  close  supervision  at  a  mini- 
mum of  expense  and  to  enforce  standards  which  will 
result  in  a  low ,  loss  ratio.     It  is  too  early  as  yet  to 
prophesy  to  what  extent  advantage  will  be  taken  of 
this    opportunity    but    the    example    of    the    Factory 
Mutuals  in  fire  insurance  furnishes  evidence  of  its  pos- 
sibilities. 

4.  Mutual  insurance  offers  an  opportunity  for  the 
combination  of  a  selected  group  of  risks  in  order  to 
secure  the  benefits  of  a  favorable  loss  experience.    By 
careful  restriction  of  the  risks  which  will  be  accepted 
a  considerable  saving  may  be  made. 


METHODS  OF  INSURANCE  187 

Arguments  against  Mutual  Insurance. — i.  The  tak- 
ing out  of  a  policy  in  a  mutual  company  compels  the 
insured  to  assume  his  share  of  the  risk  entailed  by  en- 
trance into  the  insurance  business.  He  becomes  liable 
for  assessment,  usually  to  the  amount  of  the  original 
premium,  in  case  the  company's  funds  are  insufficient 
to  meet  its  obligations.  This  risk  is  particularly  evi- 
dent in  the  liability  and  compensation  insurance  busi- 
ness because  of  its  comparative  youth,  the  lack  of  re- 
liable fundamental  statistics,  and  the  long  period  over 
which  the  payment  of  losses  extends. 

2.  Not  only  is  this  branch  of  insurance  a  compara- 
tively new  field  but  the  mutual  organizations  engaged 
in  it  have  had,  with  two  exceptions,  a  rather  limited 
experience,   most   of   them   having  been   brought  to- 
gether during  the  last  four  years.     This  disadvantage 
is  somewhat  offset  where  a  mutual  engages  executives 
who  have  previously  been  in  the  same  line  of  work. 

3.  The  small  size  of  most  mutuals  makes  less  cer- 
tain the  operation  of  averages.     The  exposure  is  lim- 
ited  in  extent  and   diversification  and  a  heavy   loss 
in  any  one  risk  or  locality  may  make  an  undue  show- 
ing in  the  loss  ratio. 

4.  The  security  offered  by  a  mutual  lacks  the  capi- 
tal  fund  which  is  possessed  by  the  stock  companies 
and,  if  young,  the  large  surplus  accumulation  also. 

5.  There  is  some  danger  that  the  managers  of  a  mu- 
tual will,  in  their  desire  to  make  a  good  showing,  de- 
clare   unwarranted    dividends    to    policyholders    and 
thereby  reduce  the  surplus  to  a  point  where  it  may  be 
insufficient  to  meet  emergencies. 


CHAPTER  XV 

METHODS  OF  INSURANCE  (Continued) 
THE  STATE  FUNDS 

Characteristics. — The  state  fund  is  a  mutual  plan 
for  the  insurance  of  workmen's  compensation,  differ- 
ing from  private  mutuals  in  three  particulars :  first, 
it  is  created  by  a  special  act  of  the  legislature ;  second, 
it  is  managed  by  state  officials;  third,  it  is  often  grant- 
ed certain  assistance,  privileges,  or  immunities,  by  the 
state.1  In  all  cases  the  state  fund  is  created  by  legis- 
lative enactment  which  is  an  integral  part  of  a  work- 
men's compensation  act  or  supplementary  thereto,  and 
it  is  usually  provided  that  the  same  body  which  has 
charge  of  the  administration  of  other  features  of  the 
compensation  legislation  shall  also  manage  the  fund. 
In  two  states,  however,  a  special  body  has  been  created 
to  take  charge  of  the  management. 

The  employer  who  insures  his  risk  in  a  state  fund 
pays  a  prescribed  premium  in  return  for  which  he  is, 
in  nine  states,  relieved  of  liability  for  future  assess- 
ments and  for  payments  to  injured  workmen.2  In 

1  No  state  guarantees  the  solvency  of  its  fund — the  state  fund 
is  an  example  of  state-maiiaged  insurance  rather  than  of  state 
insurance. 

2  Where  insurance  in  the  state  fund  is  compulsory  an  increase 
in  rates  may  be  equivalent  to  an  assessment  to  cover  liabilities 
created  in  the  past. 

188 


METHODS  OF  INSURANCE  189 

four  states  the  policyholder  is  in  practically  the  same 
position  as  to  additional  liability  as  he  would  be  were 
he  insured  in  a  private  mutual,  i.  e.,  he  is  required 
either  to  pay  his  share  of  any  liabilities  which  the  fund 
is  unable  to  meet  or  to  pay  to  his  employees  any  com- 
pensation to  which  they  are  entitled  but  which  they 
are  unable  to  recover  from  the  fund.  In  all  states  the 
employer  is  entitled  to  his  share  of  any  profit  which 
the  fund  may  make — this  may  be  returned  to  him  in 
the  form  of  dividends,  reduced  rates,  or  exemption 
from  the  payment  of  premium  for  a  certain  pe- 
riod. 

In  states  where  private  companies  are  permitted  to 
compete  with  the  fund  the  gross  rates  of  the  latter 
are  lower  than  those  of  the  companies,  with  the  ex- 
ception of  California,  where  the  same  rates  are  en- 
forced for  all  insurance  carriers.  The  rates  of  two 
of  the  funds  represent  a  horizontal  reduction  of  ten 
per  cent,  and  of  two  others,  five  and  fifteen  per  cent, 
respectively,  from  the  stock  company  rates  on  similar 
classifications.  In  eight  states  it  is  provided  that  the 
administrative  expenses  of  the  funds  shall  be  paid  by 
the  state,  in  one  of  which,  Pennsylvania,  the  state  sub- 
sidy is  to  cease  on  July  i,  1919.  In  New  York  the 
expenses  of  the  fund  were  paid  by  the  state  up  to 
July  i,  1916 — since  that  time  the  fund  has  been  re- 
quired to  support  itself.  In  Nevada  the  state  pro- 
vides offices  and  does  the  printing  for  the  fund,  while 
in  Oregon  an  amount  equal  to  one-seventh  of  the  com- 
bined payments  of  employers  and  employees  is  con- 
tributed by  the  state.  Wyoming,  in  addition  to  pay- 
ing expenses,  appropriated  $30,000  as  a  nucleus  for 


190  COMPENSATION  INSURANCE 

the  fund  and  appropriates  each  year  a  sum  equal  to 
one-quarter  of  the  total  payments  of  employers.  The 
California  fund  holds  a  state  appropriation  of  $100,- 
ooo  as  a  catastrophe  reserve. 

In  California,  Michigan,  and  Pennsylvania  the  rates 
and  reserves  of  the  funds  are  under  the  supervision 
of  the  state  insurance  department.  Other  states  leave 
these  matters  entirely  to  the  discretion  of  the  man- 
agers of  their  funds,  with  the  exception  of  New  York, 
where  the  insurance  commissioner  supervises  the  re- 
serves. 

In  all  but  three  states  a  catastrophe  reserve  is  main- 
tained, usually  in  accordance  with  statutory  provi- 
sions; for  example,  Maryland  requires  that  ten  per 
cent  of  the  premium  income  shall  be  set  aside  until 
$50,000  is  accumulated,  and  that  thereafter  five  per 
cent  shall  be  set  aside  until  there  is  a  sufficient  amount 
to  care  for  the  catastrophe  hazard. 

The  expense  ratio  of  the  state  funds  is  unusually 
low,  averaging  approximately  twelve  and  one-half  per 
cent  of  premiums.  This  is  partially  accounted  for  by 
the  fact  that,  like  mutuals,  the  acquisition  expense  is 
small,  no  commissions  being  paid. 

History  and  Extent  of  Business. — The  first  state 
fund  to  be  established  in  the  United  States  was  cre- 
ated by  the  workmen's  compensation  act  of  the  state 
of  Washington,  which  went  into  effect  in  191 1.  Since 
that  time  twelve  other  states  have  adopted  this  meth- 
od of  insurance,  the  youngest  of  the  funds  being  that 
of  Pennsylvania,  which  commenced  operations  Janu- 
ary i,  1916.  In  the  following  table  is  shown  the 
growth  of  the  state  fund  principle : 


METHODS  OF  INSURANCE  191 

STATE  FUNDS  IN  THE  UNITED  STATES 

Date  of  establishment 1911         1912         1913         1914         1915         1916 

Funds    established    during 

the  year I  2  2  5  2  I 

Total  in  operation I  3  5  10  12  13 

States  in  which  established     Wash.      Mich.       Nev.          Cal.         Colo.         Pa. 

Ohio       W.  Va.      Md.        Mont. 
N.  Y. 
Ore. 
Wyo. 

State  funds  received  $7,600,000  in  premiums  dur- 
ing the  year  1915.  They  write  insurance,  of  course, 
only  within  the  borders  of  their  respective  states, 
carrying  the  entire  business  of  the  five  states  where 
they  have  a  monopoly,  and  the  greater  part  of  the 
business  of  Ohio  and  West  Virginia,  where  an  em- 
ployer may  insure  in  a  private  company  after  securing 
permission  to  carry  his  own  risk.  Figures  from  the 
seven  states  which  have  competitive  funds  indicate 
that  these  receive  from  one-tenth  to  one-third  of  the 
total  premiums. 

Arguments  in  Favor  of  State  Funds — i.  The  pre- 
mium rates,  which  are  often  lower  than  those  of  other 
carriers,  may  be  lowered  still  further  by  the  payment 
of  dividends,  since  the  funds  are  operated  on  the  mu- 
tual plan.  Where  the  state  pays  expenses  of  admin- 
istration or  contributes  a  subsidy  the  employer  may 
be  benefited  by  the  consequent  reduction  in  the  amount 
of  his  own  contributions. 

2.  In  those  states  which  provide  that  insurance  in 
the  state  fund  shall  relieve  the  employer  of  all  liabil- 
ity for  payments  to  his  injured  workmen,  for  the  pay- 
ment of  assessments  to  the  fund,  or  for  both,  he  is 
given  absolute  security  in  return  for  his  premium. 

3.  The  state  fund,  managed  in  all  cases  by  public 
officials,  and  usually  by  the  same  body  which  admin- 


192  COMPENSATION  INSURANCE 

isters  the  compensation  law,  may  be  operated  to  carry 
out  the  fundamental  purposes  of  compensation  legis- 
lation, conserving  impartially  the  interests  -of  the  em- 
ployer, of  the  employee,  and  of  the  general  public. 

4.  A  monopolistic  state  fund,  by  the  concentration 
of  the  entire  compensation  insurance  business  of  a 
state,  promotes  uniformity  in  the  treatment  of  employ- 
ers and  employees  and  eliminates  the  waste  due  to  com- 
petitive expenses  and  duplication  of  equipment  and 
organization. 

5.  A  competitive  state  fund  may,  through  its  rates 
and  service,  act  as  a  regulatory  agency,   compelling 
private  companies  to  adhere  to  fair  rates  and  prac- 
tices. 

6.  The  state  fund  is  as  carefully  regulated  as  pri- 
vate companies  in  some  states  and  might  be  so  regu- 
lated in  all. 

7.  Such  criticism  of  the  state  funds  as  is  tenable 
is  directed,  not  -at  the  principle,  but  at  the  methods 
which  have  been  followed  in  applying  it.     State  fund 
insurance,   since  it  is  a  new  venture  in  the  United 
States,  must  pass  through  a  period  of  development  and 
experimentation,  the  cost  of  which  is  fully  justified  by 
the  possible  future  service  to  be  expected  from  this 
plan  of  insurance. 

Arguments  against  State  Funds. — i.  The  manage- 
ment of  the  funds  is  vested  in  appointive  state  officials, 
and  politics  plays  too  large  a  part  in  their  selection. 
Insufficient  salaries,  political  considerations,  and  in- 
secure tenure  of  office  all  tend  to  produce  the  ineffi- 
;  ciency  which  is  a  characteristic  of  state-managed  in- 
stitutions. 


METHODS  OF  INSURANCE  193 

2.  Neither  the  policyholders  nor  anyone  financially 
interested  in  the  success  of  the  funds  have  any  direct 
control  over  their  management. 

3.  In  the  event  of  insolvency  as  a  result  of  ineffi- 
cient management  or  of  rates  fixed  by  the  legislature 
the  employer  will  be  obliged  to  make  further  contribu- 
tions or,  where  he  is  relieved  of  all  liability,  the  em- 
ployee will  lose  a  portion  of  his  compensation.     If  the 
deficit  is  made  up  from  the  state  treasury  it  will  in- 
volve a  higher  tax  rate.    There  is  also  some  question 
as  to  whether  a  statute  relieving  the  employer  of  all 
liability  on  the  payment  of  a  stated  premium  would 
be  held  constitutional  by  the  courts. 

4.  The  payment  of  expenses  by  the  state  gives  the 
fund  an  unfair  advantage   in  competition  with  pri- 
vate companies  which  must  meet  all  expenses  from 
premium  receipts. 

5.  The  state  fund  is  not  in  a  position  to  reject  poor/ 
risks  and  is  forced  to  accept  many  which  private  com- 
panies are  unwilling  to  carry. 

6.  The  practice  of  fixing  rates  by  legislative  enact- 
ment, which  obtains  in  some  states,  is  unscientific  and 
impractical,   involving  unfairness   in  the  distribution 
of  compensation  cost  and  endangering  the  solvency 
of  the  fund. 

7.  The  state  should  confine  itself  to  regulation  and 
should  not  attempt  to  enter  business  enterprises  which 
can  be  conducted  by  individual  initiative. 

CONCLUSION 

There  is  the  utmost  disagreement  on  the  question 
of  the  relative  desirability  of  different  methods  of  in- 


194  COMPENSATION  INSURANCE 

suring  the  compensation  obligation.  Stock  companies, 
private  mutuals,  and  state  funds  all  have  their  ardent 
proponents  and  equally  ardent  opponents,  though  the 
really  big  issue  is  between  state-managed  and  private- 
ly managed  enterprise.  The  literature  which  has  ap- 
peared in  support  of  any  one  of  these  forms  (and 
this  has  generally  meant  in  condemnation  of  all  oth- 
ers) has  been  too  evidently  partisan  to  furnish  a  sat- 
isfactory basis  for  a  decision  and  has  likewise  failed 
to  take  into  consideration  the  viewpoints  of  all  of  the 
parties  in  interest.  To  arrive  at  any  proper  conclu- 
sion all  of  these  viewpoints  must  be  given  their  due 
weight. 

In  attempting  to  come  to  a  decision  respecting  the 
relative  merits  of  these  three  methods  of  insurance, 
it  should  be  remembered  that  there  is  being  sought  an 
answer  to  the  question — which  of  these  is  best  adapted 
to  carry  out  the  fundamental  purposes  of  workmen's 
compensation.'  Which  contributes  most  to  the  well- 
being  of  employer,  of  employee,  and  of  society?]  A 
judgment  of  this  sort  must  reflect  not  only  theoretical 
possibilities  but  actual  experience,  for  it  is  often  found 
that  unforeseen  obstacles  prevent  the  realization  of 
expected  advantages,  while  practical  application  may 
develop  a  means  of  counteracting  objectionable  fea- 
tures or  disclose  the  remoteness  of  feared  contingen- 
cies. Further,  there  may  be  a  necessity  of  compro- 
mise between  apparently  conflicting  viewpoints  though, 
in  the  long  run,  provision  for  the  welfare  of  any  one 
class  will  probably  redound  to  the  benefit  of  all  classes. 

Before  proceeding  further  the  criteria  to  be  ap- 
plied to  any  given  scheme  must  be  determined.  These 


METHODS  OF  INSURANCE  195 

criteria  should  represent  the  viewpoints  of  the  three 
great  classes  which  are  directly  concerned  in  the 
decision  and  can  best  be  stated  in  terms  of  their  re- 
spective interests.  The  method  of  insurance  which 
most  fully  satisfies  all  of  these,  always  having  proper 
regard  for  the  relative  importance  of  each,  should  be 
considered  most  worthy  of  adoption.  All  three 
classes,  employer,  employee,  and  society,  are  interested 
in  the  elimination  of  litigation  and  in  the  prevention 
of  accidents.  Society  and  the  employer  are  interested 
in  effecting  insurance  at  the  lowest  possible  cost,  while 
both  employer  and  employee  demand  a  method  of  in- 
surance which  will  furnish  the  greatest  security  and 
promote  amicable  relations  between  labor  and  capital. 
Lastly,  the  workman  is  peculiarly  interested  in  secur- 
ing a  fair  adjustment  of  his  claims  for  compensation 
and  in  receiving  prompt  relief  in  case  of  injury. 

Conclusions  from  Experience. — Whatever  may  be 
one's  judgment  on  a  priori  grounds,  it  may  be  safely 
stated  that  the  practice  of  workmen's  compensation 
insurance  in  the  United  States  has  not  demonstrated 
the  superiority  of  any  one  form  of  carrier.  Defects 
and  advantages  have  developed  in  each  method  but  in 
no  case  have  they  been  essential.  Stock  companies  and 
mutual  companies  have  been  forced  to  liquidate  and 
state  funds  have  been  unable  to  meet  their  obliga- 
tions in  certain  hazardous  classifications.  Yet  these 
failures  have  meant  inefficient  management  or  im- 
properly drafted  laws,  both  of  which  can  be  corrected 
In  the  majority  of  cases  private  and  state  institution^ 
alike  have  met  the  financial  obligations  imposed  upon 
them. 


196  COMPENSATION  INSURANCE 

Nor  does  the  study  of  financial  statements  and  of 
records  of  loss  expense  and  dividend  ratios  yield  con- 
clusive material.  Out  of  premiums  received  during 
the  past  five  years  reserves  have  been  set  up  from 
which  payments  must  be  made  for  an  indefinite  future 
period.  Whether  these  reserves  are  adequate  is  not 
definitely  known,  but  on  their  adequacy  depends  in 
considerable  measure  the  future  financial  status  of  the 
insurance  carriers.  It  is  evident,  of  course,  that  the 
carrier  which  has  devoted  the  largest  relative  amount 
of  money  to  reserves  and  surplus  is,  as  regards  those 
items,  in  the  strongest  financial  position;  but  other 
carriers  will  argue  that  their  reserves  and  surplus  are 
adequate  and  that  a  larger  amount  only  means  an  ex- 
cessive premium  charge. 

It  should  be  borne  in  mind  also  that  ratios  of  loss, 
expense,  or  dividends  mean  little  unless  interpreted  in 
the  light  of  all  the  facts.  A  high  loss  ratio  may  mean 
adequate  reserves,  excessive  reserves,  poor  risks,  or 
lavish  loss  settlements;  a  low  loss  ratio  may  mean  in- 
adequate reserves,  careful  selection  of  risks,  an  effi- 
cient claim  department,  or  extraordinary  good  for- 
tune. A  high  expense  ratio  may  be  the  result  of  ineffi- 
cient management,  careful  provision  for  the  future, 
or  unusually  good  service  to  policyholders ;  a  low  ex- 
pense ratio,  the  result  of  efficient  management,  un- 
wise retrenchments,  or  inferior  service.  Similarly, 
large  dividends  may  reflect  real  savings  or  specula- 
tive management ;  low  dividends,  a  policy  of  thorough- 
going preparation  for  the  future  or  managerial  incom- 
petence. These  forces  and  others  lie  back  of  the  bare 
figures  and  it  is  especially  important  to  consider  them 


METHODS  OF  INSURANCE  197 

until  sufficient  experience  has  developed  to  enable 
more  accurate  conclusions  to  be  drawn  from  simple 
ratios.  Ratios,  unless  viewed  in  the  light  of  the  causes 
which  have  produced  them,  are  never  conclusive ;  they 
are  least  valuable  when  they  are  the  result  of  limited 
experience. 

The  Future. — Owing  to  the  inconclusiveness  of 
available  experience  the  question  of  what  provision  a 
compensation  law  should  make  for  insurance  is  a 
mooted  one  and  there  is  little  probability  of  final  an- 
swer in  the  near  future.  It  is  well  that  diverse 
experiments  are  being  carried  on,  for  they  will 
gradually  furnish  material  en  which  to  base  sound 
legislation.  There  is  undoubtedly  much  cogency  in  the 
argument  for  competition,  partly  because  it  gives  em- 
ployers with  varying  types  of  mind  and  in  varying  in- 
dustries an  opportunity  to  select  their  insurance  car- 
riers, and  partly  because  it  tests  out  the  different  prin- 
ciples, one  against  the  other.  Against  many  present 
methods  of  competition,  however,  too  much  cannot  be 
said;  they  savor  of  the  political  campaign  and  stress 
partisan  conclusions  rather  than  scientific  evidence. 
Many  broad  statements  have  been  made  with  small 
statistical  backing  and  many  generalizations  have  been 
drawn  from  preconceived  ideas  rather  than  from  com- 
prehensive data. 

REFERENCES 

Papers  on  "Merits  and  Demerits  of  Different  Methods  of 
Carrying  Workmen's  Compensation  Insurance." 
Proceedings  of  the  Conference  on  Social  Insurance. 
.  .  .  Dec.  5  to  9,  I9i6.t  Bulletin  of  the  U.  S.  Bureau 
of  Labor  Statistics,  No.  212.  Washington  (1917). 
14 


198  COMPENSATION  INSURANCE 

RYAN,  H.  E.  "Methods  of  Insuring  Workmen's  Compen- 
sation." Modern  Insurance  Problems,  Annals  of 
the  American  Academy  of  Political  and  Social  Sci- 
ence (March,  1917),  pp.  244-254. 

DOWNEY,  E.  H.  "The  Organization  of  Workmen's  Com- 
pensation Insurance."  Journal  of  Political  Economy 
(December,  1916),  pp.  951-984. 

RUBINOW,  I.  M.  "Social  Insurance."  Holt,  New  York 
(1913).  Chap.  IX. 

Insurance  Year  Book:  Life,  Casualty,  and  Miscellaneous 
Insurance.  Published  annually  by  The  Spectator  Co., 
New  York. 

Special  Report  on  The  State  Industrial  Insurance  Depart- 
ment. Department  of  Auditor  of  State,  Olympia, 
Wash.  (1916). 

Report  of  the  Voluntary  Investigating  Commission  on 
Workmen's  Compensation.  Frankfort,  Kentucky 
(1916).  Pp.  50-53,60-63. 

Report  of  the  Joint  Special  Recess  Committee  on  Work- 
men s  Compensation  Insurance  Rates  and  Accident 
Prevention.  Boston  (1917). 


CHAPTER  XVI 

THE  POLICY  CONTRACT1 
GENERAL  PRINCIPLES 

A  Contract  of  Indemnity. — The  relationship  between 
insurer  and  insured  is  governed  by  the  terms  of  the  in- 
surance policy  and  by  the  principles  of  law  applicable  to 
its  interpretation.  Basically,  the  policy  is  a  contract  of 
indemnity — a  promise  by  the  insurer,  in  consideration 
of  a  premium  payment,  to  indemnify  the  insured  for 
loss  arising  from  certain  specified  events.  From  the 
principle  of  indemnity  it  follows  that  an  insurable  in- 
terest is  prerequisite  to  a  valid  contract  of  insurance. 
Insurable  interest  is  "every  interest  in  property  or  in 
relation  thereto  or  liability  in  respect  thereof,  of  such 
a  nature  that  a  contemplated  peril  may  directly  dam- 
nify the  insured."  2 

Although  the  agreement  is  aleatory  or  speculative  in 
one  sense,  that  is,  the  parties  may  not  know  whether  the 
event  insured  against  will  occur  or  not,  and  in  return 
for  a  comparatively  small  sum  of  money  the  one  party 

1  In  this  chapter  the  essential  and  peculiar  features  of  the  con- 
tract are  considered.  For  more  complete  information  the  reader 
is  referred  to  the  form  of  contract  contained  in  Appendix  B  and 
to  the  text  books  on  insurance  law.  Thorough  study  of  the 
provisions  of  the  contract  form  is  advised. 

3  Elliott  on  Insurance,  p.  40. 

199 


200  COMPENSATION  INSURANCE 

assumes  the  risk  of  incurring  liability  to  a  much  greater 
amount,  nevertheless,  compensation  for  a  real  loss,  rather 
than  a  purely  speculative  venture,  must  be  the  aim  and 
object,  and  consequently  the  party  insured  must  be  able 
to  show  an  insurable  interest  in  the  subject  of  insurance, 
an  interest  of  a  material  and  valuable  character,  and  not 
merely  moral  and  sentimental,  or  else  the  contract  will  be 
altogether  void.  The  doctrines  of  indemnity  and  of  the 
necessity  of  an  insurable  interest  are  correlative  and  com- 
plementary in  all  branches  of  the  law  of  insurance.3 
»  The  rule  requiring  an  insurable  interest  to  give  sup- 
port to  the  contract  exists  in  this  country  irrespective  of 
statutory  provisions,  and  everywhere  is  grounded  upon 
important  considerations  of  public  policy.  Without  it 
the  contract  would  be  a  wager,  and  a  wager  policy  is  more 
to  be  condemned  than  an  ordinary  wager,  since  it  is  not 
only  at  variance  with  sound  business  ethics,  but  it  also 
offers  peculiar  inducements  to  the  assured  to  bring  about 
fraudulently  the  event  insured  against.4 

A  Personal  Contract. — The  insurance  policy  is  a 
personal  contract  binding  only  as  between  the  original 
policyholder  and  the  insurer,  unless  the  latter  consents 
to  an  assignment.5  The  risk  assumed  by  the  insurer  is 
conditioned  in  large  degree  by  the  character  and  hab- 
its of  the  insured  through  his  supervision  of  the  opera- 
tions covered  by  the  contract.  To  allow  assignment 
without  permission  would  be  unjust  since  it  might 
involve  an  increased  moral  hazard.  In  liability  and 
compensation  insurance  the  moral  hazard  is  deter- 

3  Richards  on  Insurance,  pp.  28-9. 

*  Richards,  op.  cit.,  p.  32. 

5  The  life  insurance  policy  is  an  exception  to  this  general  rule. 


THE  POLICY  CONTRACT  201 

mined  by  relative  attention  to  the  prevention  of  indus- 
trial accidents  and  to  care  for  injured  employees. 

Rules  of  Construction. — Two  rules  followed  by  the 
courts  in  the  construction  of  contract  provisions  are 
particularly  important ;  the  rules  that  the  insured  is  to 
receive  the  benefit  of  any  doubt,  and  that  endorse- 
ments take  precedence  over  the  original  terms  of  the 
contract.  The  first  of  these  was  adopted  on  the  theory 
that  the  insurer,  who  had  drawn  up  the  contract, 
should  be  responsible  for  the  elimination  of  ambiguity 
and  should  not  be  allowed  to  take  advantage  of  the 
policyholder  by  the  use  of  equivocal  expressions. 
Doubtless  the  unfair  practices  of  some  of  the  earlier 
companies  in  inserting  provisions  in  their  policies  for 
the  express  purpose  of  avoiding  liability  on  technical 
grounds  had  much  to  do  with  the  attitude  of  the  courts. 

The  rule  that  endorsements  which  disagree  with 
the  terms  of  the  original  contract  shall  control  is  an 
application  of  the  familiar  principle  of  contract  law 
that,  in  event  of  conflicting  agreements,  the  latest 
meeting  of  the  minds  shall  govern.  An  endorsement 
is  assumed  to  be  of  later  date  than  the  policy  itself. 

EMPLOYERS'  LIABILITY  CONTRACT 

The  Obligation  Assumed. — -The  employers'  liability 
contract  is  in  no  sense  an  agreement  to  provide  com- 
pensation to  injured  employees;  its  sole  purpose  is  to 
relieve  the  employer  of  the  financial  consequences  of 
injuries  received  by  his  workmen.  \  But  it  is  more  than 
a  contract  to  reimburse  the  employer  for  actual  loss 
incurred,  it  is  also  a  contract  of  service.  The  insurer 


202  COMPENSATION  INSURANCE 

agrees  to  assume  the  losses  due  to  legal  liability  of 
the  employer  on  account  of  accidental  bodily  injuries 
to  his  employees,  to  investigate  such  accidents  and  ad- 
just resultant  claims,  to  defend  damage  suits  whether 
groundless  or  not,  and  to  pay  court  costs  and  other 
expenses  arising  out  of  injuries  and  claims.  Indem- 
nity for  loss  on  account  of  legal  liability  for  damages 
is  limited  to  a  certain  sum  for  one  injured  person,  and 
the  total  indemnity  payable  for  one  accident  is  likewise 
limited.  The  "standard  limits"  are  $5,000  and  $10,- 
ooo ;  other  limits  involve  an  adjustment  of  premium 
to  reflect  the  changed  hazard. 

The  policy  covers  all  employees  of  the  insured 
whose  compensation  is  stated,  with  the  usual  excep- 
tion of  children  employed  in  violation  of  an  age  law 
("or  under  the  age  of  fourteen  years  if  there  is  no  le- 
gal age  limit")  and  of  convict  labor.  Injuries  result- 
ing from  the  business  operations  of  the  insured  are 
covered,  including  ordinary  repairs ;  but  extraordinary 
repairs,  alterations,  and  construction  work  may  be  in- 
cluded only  under  a  special  classification  or  endorse- 
ment. Injuries  occurring  on  the  premises  of  the  in- 
sured or  on  those  immediately  adjoining,  or  in  other 
places  if  the  injured  is  a  driver  or  driver's  helper,  are 
always  covered;  and  some  policies  include  other  speci- 
fied classes  of  employees  wherever  they  may  be,  or 
make  no  restrictions  as  to  location. 

Premium  Computation. — The  premium  paid  by  the 
employer  is  based  on  the  total  remuneration  received 
by  his  employees  during  the  policy  period.  An  esti- 
mate of  the  payroll  is  furnished  to  the  insurer  in  the 
application  for  insurance  as  a  basis  for  the  payment  of 


THE  POLICY  CONTRACT  203 

an  advance  premium.  At  the  end  of  the  period  the 
premium  is  adjusted  to  the  actual  payroll,  the  employer 
paying  an  additional  charge  if  the  actual  is  greater 
than  the  estimated  and  the  insurer  returning  a  pro- 
portionate amount  if  the  estimated  payroll  is  greater. 
In  all  cases  the  insurer  is  entitled  to  a  minimum  pre- 
mium named  in  the  policy.  The  insurer  has  the  right 
to  examine  the  books  of  the  insured  at  any  reason- 
able time  while  the  policy  is  in  force  and  within  one 
year  after  its  termination  for  the  purpose  of  determin- 
ing the  actual  remuneration  paid. 

Inspection. — The  right  is  reserved  to  inspect  the 
place  of  business  of  the  insured  while  the  policy  is  in 
force  in  order  to  suggest  means  of  accident  prevention 
and  to  learn  of  changes  of  hazard. 

Cancellation. — The  contract  may  be  cancelled  by  no- 
tice to  either  party  stating  the  date  thereafter  when 
cancellation  is  to  become  effective.  If  the  insured 
cancels  the  policy  and  is  retiring  from  the  business 
described  in  the  policy  or  if  the  insurer  cancels,  a  pro 
rata  premium  for  the  period  during  which  the  policy 
has  been  in  force  is  retained  by  the  insurer.  If  the  in- 
sured cancels  and  is  not  retiring  from  business,  a  short 
rate  premium,  an  amount  somewhat  larger  than  the 
pro  rata  and  never  less  than  the  minimum  premium, 
is  retained.  Provision  for  short  rates  is  justified  by 
the  fixed  charges  connected  with  the  handling  of  all 
policies. 

Notices. — The  insured  is  required  to  give  immediate 
written  notice  to  the  insurer  of  all  accidents  which  oc- 
cur, of  all  claims  made,  and  of  all  suits  brought,  and 
must  forward  all  papers  served  upon  him.  He  must 


204  COMPENSATION  INSURANCE 

also  give  full  particulars  and  aid  the  insurer  in  every 
way,  but  is  not  allowed  to  assume  liability  nor  to 
give  assistance  other  than  "first  aid"  without  written 
permission  from  the  insurer.  Fulfillment  of  these  re- 
quirements demands  a  "reasonable"  compliance  with 
their  terms — the  courts  will  not  allow  the  insurer  to 
escape  liability  on  purely  technical  grounds. 

Warranties. — Certain  statements  made  by  the  in- 
sured and  incorporated  in  the  contract  are  declared 
to  be  warranties  except  where  it  is  specifically  stated 
that  they  are  estimates.6  Under  the  legal  definition 
of  a  warranty  proof  that  any  such  statement  is  not  lit- 
erally true  causes  avoidance  of  the  contract.  Most 
states  now  have  laws,  however,  which  provide  that  all 
statements  in  a  policy  shall  be  regarded  as  represen- 
tations, even  though  they  appear  in  the  form  of  war- 
ranties. In  the  absence  of  fraud  it  is  necessary  to 
prove  that  a  representation  is  both  material  and  un- 
true in  order  to  void  the  contract.  To  bejnaterial  a 
statement  must  be  such  as  would  affect  the  acceptance 
of  the  risk  or  the  amount  of  the  premium. 

Miscellaneous. — Other  clauses  are  usually  inserted 
providing  that  no  assignment  shall  be  valid  without 
the  written  consent  of  the  insurer;  that  if  insurance 
is  carried  with  other  carriers,  liability  for  payment  of 
claims  shall  be  limited  to  the  same  proportion  of  the 
claim  as  the  sum  insured  under  the  terms  of  the  par- 
ticular policy  bears  to  the  total  insurance  carried; 
that  the  insurer  shall  be  subrogated  to  the  rights  of 
the  insured  to  recover  damages  from  third  parties; 

"See  "Declarations"  in  policy  form,  Appendix  C. 


THE  POLICY  CONTRACT  205 

that  changes  shall  not  be  made  except  by  endorsement 
signed  by  certain  officers  of  the  company;  and  that 
state  statutes  dealing  with  the  serving  of  notices  or 
the  institution  of  legal  proceedings  supersede  policy 
provisions  which  are  inconsistent  with  them.  Such 
provisions  are  common  to  many  forms  of  insurance 
and  have  no  peculiar  significance  in  liability  insur- 
ance. 

WORKMEN'S   COMPENSATION   CONTRACT 

The  Obligation  Assumed. — The  workmen's  com- 
pensation insurance  contract  differs  fundamentally 
from  the  employers'  liability  contract.  Vlt  is  an  agree- 
ment made  with  the  employer  to  pay  indemnity  to  his 
workmen  or  to  their  dependents  according  to  the  terms 
of  a  compensation  act  whiclr  is  considered  a  part  of 
the  policy  contract.  v  All  employees  whose  remunera- 
tion is  declared  by  the  employer  are  covered  and  there 
are  no  limitations  on  the  amount  payable  or  the  loca- 
tions covered,  other  than  those  expressed  in  the  stat- 
ute. Such  an  agreement  is  usually  required  by  state 
law,  but  it  is  the  practice  of  insurers  to  write  all  con- 
tracts on  much  the  same  basis,  some  having  standard- 
ized contracts  which  are  used  in  all  states,  the  com- 
pensation law  of  a  particular  state  being  cited  by  en- 
dorsement. 

Provision  similar  to  that  contained  in  the  employ- 
ers' liability  contract  is  made  for  service  to  the  in- 
sured, for  defense  of  suits,  and  for  payment  of  ex- 
penses, with  the  addition  of  specific  agreements  to  sug- 
gest means  of  accident  prevention  to  the  employer, 


206  COMPENSATION  INSURANCE 

and  to  furnish  medical  and  surgical  aid  and  supplies, 
or  pay  funeral  expenses  as  required  in  the  law. 

Premium  Adjustment. — An  advance  premium  is 
paid  on  the  estimated  payroll  which  is  adjusted  to  ac- 
tual payroll  at  the  end  of  the  policy  period.  Clauses 
are  often  inserted  to  provide  for  changes  in  manual 
rates,  for  schedule  and  experience  rating  modifica- 
tions, and  for  an  adjustment  of  rates  to  conform  to  a 
change  in  the  hazard  due  to  court  decisions  holding 
the  compensation  law  unconstitutional  in  whole  or  in 
part. 

Notice. — That  notice  of  the  occurrence  of  an  acci- 
dent to  the  insured  employer  shall  be  considered  notice 
to  the  insurer  is  required  by  the  laws  of  many  states 
and  is  accordingly  a  contract  provision  in  those  states. 

Cancellation. — Cancellation  may  be  effected  by 
either  party  on  ten  days'  notice  in  most  states,  though 
a  longer  notice  is  required  in  some.  Four  states  re- 
quire that  notice  of  cancellation  must  be  sent  to  the 
administrative  body. 

In  other  respects  the  compensation  contract  is  sim- 
ilar to  the  liability  form. 

Approval  of  the  Contract. — Certain  states  7  require 
that  forms  of  contract  must  be  submitted  to  a  state 
official  for  approval  and  in  some  other  states  policy 
forms  are  regulated  under  the  power  of  the  adminis- 
trative officials  to  reject  an  unsatisfactory  form  as 
being  unacceptable  as  evidence  of  insurance. 

The  differences  between  the  employers'  liability  and 

7  Connecticut,  Indiana,  Kentucky,  Louisiana,  Maryland,  and 
Massachusetts.  New  York  and  Maryland  prescribe  standard 
policy  forms  to  be  used  by  all  insurers. 


THE  POLICY  CONTRACT  207 

the  workmen's  compensation  contract  are  expressive 
of  the  relative  status  of  the  insurance  carrier  under 
the  two  regimes.  Under  the  old  system  of  employers' 
liability  the  carrier  existed  merely  as  a  convenient  busi- 
ness device  through  which  an  employer  might  pro- 
tect himself  from  the  danger  of  heavy  losses  in  dam- 
ages to  workmen  and  to  which  he  could  shift  the  trou- 
ble and  expense  of  handling  claims.  The  interests  of 
employees  were  not  considered. 

Workmen's  compensation  being  primarily  for  the 
benefit  of  the  employee,  it  is  essential  that  emphasis 
be  placed  on  security  and  fairness  of  payment  to  him. 
The  insurance  carrier  is  now  an  important  administra- 
tive unit  engaged  in  carrying  out  the  broad  social  pur- 
poses of  the  law  as  well  as  a  necessary  protection  and 
agent  of  the  employer. 

REFERENCES 

RHODES,  J.  E.  2d.  'The  Liability  Contract."  Liability 
and  Compensation  Lectures,  Insurance  Institute  of 
Hartford.  Hartford  (1913). 

Elliott  on  Insurance,  pp.  14-163,  451-458.  Bobbs-Mer- 
rill,  Indianapolis  (1907). 

Richards  on  Insurance  Law,  pp.  27-220,  664-678.  Banks 
Law  Publishing  Co.  New  York  (1909). 

DE  LEON,  E.  W.  Manual  of  Liability  Insurance.  Spec- 
tator Co.  New  York  (1909). 


CHAPTER  XVII 

MANUAL  PREMIUM  RATES 

The  premium,  in  insurance,  is  the  price  which  the 
insurance  carrier  receives  for  assuming  risk  and  for 
rendering  services  incidental  thereto.  An  ideal  pre- 
mium rate  is  an  exact  measure  of  the  risk  assumed, 
plus  a  proportionate  part  of  the  expenses  of  conduct- 
ing the  insurance  business,  and  is  levied  on  the  basis 
of  a  unit  of  exposure  to  the  risk.  In  employers'  lia- 
bility and  compensation  insurance  the  unit  of  exposure 
is  one  hundred  dollars  of  yearly  payroll  and  the  pre- 
mium to  be  paid  by  any  given  employer  is  as  many 
times  the  quoted  rate  as  one  hundred  dollars  is  con- 
tained in  his  yearly  payroll. 

Employers'  Liability  Rates. — In  quoting  rates  for 
employers'  liability  insurance  the  companies  have  been 
hampered  by  a  lack  of  statistical  experience  and  by 
unregulated  competition.  These  rates  have  reflected 
relative  hazard  between  states,  industries,  and  plants 
only  in  a  very  general  way.  Such  experience  as  has 
been  accumulated  has  been  of  small  value  because  of 
the  fluctuating  nature  of  the  hazard,  and  rates  have 
been  quoted  largely  on  the  basis  of  "underwriting 
judgment,"  a  method  which  involves  too  much  of  the 
human  element  to  be  entirely  trustworthy.  Rates  have 
been  further  influenced  by  the  practical  necessity  of 

208 


MANUAL  PREMIUM  RATES  209 

"getting  the  business''  and  have  frequently  been  cut  to 
unremunerative  levels  in  order  to  hold  risks  against 
competition.  Such  practices  necessarily  mean  unrea- 
sonably profitable  business  elsewhere,  or  insolvency, 
and  they  increase  the  discrepancy  between  actual  and 
ideal  rates.  Attempted  cooperation  to  maintain  ade- 
quate and  just  rates  has  failed  and  opportunistic  meth- 
ods have  been  generally  recognized  by  the  insurance 
carriers  as  unavoidable. 

Altogether,  the  insurance  of  employers'  liability  has 
never  been  on  a  scientific  basis  and,  while  it  has  rested 
fundamentally  on  the  probability  concept,  the  appli- 
cation of  the  theory  to  the  insurer's  entire  group  of 
risks  has  been  inexact  and,  to  the  individual  risk,  ex- 
tremely rough. 

WORKMEN'S  COMPENSATION  RATES 

History. — When  workmen's  compensation  insur- 
ance was  first  written  in  the  United  States  it  was 
necessary  to  quote  rates  on  a  new  hazard  which  could 
not  be  measured  by  past  experience.  Use  was  made 
of  every  possible  source  of  data  which  would  shed 
light  on  the  problem ;  labor  statistics,  experience  from 
employers'  liability  and  workmen's  collective  insur- 
ance in  the  United  States,  and  figures  from  foreign 
countries  were  studied.  The  study  of  all  of  these,  com- 
bined with  a  liberal  measure  of  underwriting  judg- 
ment, produced  a  result  which  was  far  from  satis- 
factory. The  first  rates  were  pitched  too  high  and 
successive  reductions  were  made  to  bring  them  to  a 
level  which  should  be  less  burdensome  to  the  insured, 


210  COMPENSATION  INSURANCE 

while  still  providing  adequate  income  for  the  in- 
surer. Adjustment  of  rates  to  industries  and  to  par- 
ticular risks  has  been  and  still  is  a  problem.  Rates 
on  certain  classifications  have  proved  grossly  inade- 
quate and  on  others  far  too  liberal  to  the  insurer. 

The  Importance  of  the  Rate. — The  quotation  of 
proper  rates  is  the  most  important  and  most  perplex- 
ing problem  which  the  insuring  organization  must 
meet.  On  the  adequacy  of  rates  in  general  depends 
the  income  of  the  insurer.  They  must  be  sufficiently 
productive  in  the  aggregate  to  cover  legitimate  dis- 
bursements and  build  up  a  comfortable  surplus — other- 
wise the  organization  is  unsuccessful  and- sometimes 
insolvent.  It  is  likewise  important  to  the  insured  and 
to  his  employees  that  rates  be  adequate.  If  the  in- 
surer, because  of  insufficient  income,  is  unable  to  pay 
compensation  in  full,  either  the  employer  must  make 
up  the  balance  or  the  employee  will  be  deprived  of  as- 
sistance to  which  he  is  entitled.  Although  the  em- 
ployer is  interested  in  keeping  rates  at  a  level  which 
will  enable  the  insurer  to  furnish  ample  security,  it  is 
to  his  disadvantage  if  they  are  set  above  that  point,  for 
such  a  condition  would  involve  excessive  insurance 
cost  and  undue  profit  for  the  insurer. 

Even  though  the  general  level  of  rates  may  be  such 
as  to  produce  an  adequate  but  not  unreasonable  in- 
come for  the  insurer  there  may  be  injustice  between 
classifications  and  between  employers  within  the  same 
classification.  In  the  interests  of  justice  each  employer 
should  contribute  to  the  general  fund  an  amount  pro- 
portioned to  the  hazard  of  his  particular  plant. 

The  Task  of  Rate-making. — Rate-making  to  meet 


MANUAL  PREMIUM  RATES 

these  requirements  calls  for  the  cooperation  of  statis- 
ticians, actuaries,  engineers,  and  (in  decreasing  em- 
phasis) underwriters.  Statisticians  collect  and  ar- 
range data  of  past  experience ;  actuaries,  with  past  ex- 
perience as  a  guide,  construct  new  rates  for  the  future ; 
engineers  assist  in  measuring  mechanical  and  struc- 
tural hazards ;  while  underwriters  lend  their  judgment 
in  the  quotation  of  rates  for  which  no  accurate  mathe- 
matical basis  is  available. 

Kinds  of  Rates. — This  work  results  in  three  kinds 
of  rates :  the  manual  rate,  applying  to  a  given  indus- 
try and  state ;  the  schedule  rate,  a  modification  of  the 
manual  rate  to  conform  to  visible  conditions  in  a  given 
plant;  and  the  experience  rate,  a  modification  of  the 
manual  rate  based  on  the  loss  experience  of  a  particu- 
lar risk.  Schedule  and  experience  rates  are  fre- 
quently referred  to  as  "merit  rates." 

MANUAL  RATES 

Definition. — Manual  rates  are  those  rates  which 
appear  in  the  rate  manual  and  which  are  supposed  to 
represent  the  average  insurance  cost  per  one  hundred 
dollars  of  yearly  payroll  for  given  classifications  of 
industry. 

Use  of  Manual — Suppose  it  is  desired  to  find  the 
rate  for  a  plant  located  in  Illinois  and  manufacturing 
wooden  boxes  from  shocks  supplied  by  another  plant. 
Turning  to  page  65  of  the  manual  it  is  found  that  the 
compensation  rate  symbol  for  "Box  Mfg. — wood — 
assembling  only"  is  CP.  The  actual  rate  is  then 
found  by  reference  to  the  Illinois  table  of  values  for 


COMPENSATION  INSURANCE 

compensation  rate  symbols  on  which  CP  is  assigned  a 
value  of  $2.70.  Assuming  that  the  manufacturer 
owning  this  plant  has  an  annual  payroll  of  $100,000 
he  would  be  required  to  pay  a  total  premium  of  $2,700. 
If,  however,  his  annual  payroll-  were  only  $500  the 
premium  charge  would  be  $25,  the  amount  of  the 
minimum  premium  which  the  insurer  will  accept  for 
compensation  coverage.1 

The  Component  Parts  of  a  Manual  Rate. — The 
manual  rate  is  made  up  of  three  parts,  expected  loss 
cost,  allowance  for  expenses,  and  profit. 

The  accurate  computation  of  loss  cost  presents  great 
difficulties,  for  this  item  is  made  up  of  several  subor- 
dinate items  and  varies  not  only  between  classifications 
but  between  states,  and  the  hazards  involved  are  as 
yet  imperfectly  known.  Statistics  of  losses  under 
compensation  policies  have  been  accumulating  since 
1911,  but  it  is  only  recently  that  they  have  been  sys- 
tematically and  carefully  collected.  Even  if  there  were 
complete  and  accurate  statistics  the  changing  nature 
of  the  hazard  would  present  difficulties.  The  pay- 
ments which  must  be  made  under  compensation  poli- 
cies are  dependent  on  the  law  under  which  they  are 
made,  on  the  interpretation  of  the  law  by  an  adminis- 
trative body,  on  methods  of  production,  and  on  the 
intensity  of  industrial  activity.  Scientific  considera- 

1A  sample  page  from  the  manual  is  reproduced  on  page  213, 
and  the  table  of  values  for  Illinois  on  page  214.  Certain  of 
the  state  funds  issue  rate  manuals  of  their  own  but  the  type 
described  here  is  used  in  writing  the  greater  part"  of  the  business 
in  the  United  States.  The  numerals  I  to  10  under  the  heading 
"M.  P. — Comp."  indicate  minimum  premiums  varying  from  $10 
to  $250. 


Classification                          No. 

Comp. 

P.L 

Teams 

M.P. 

Comp 

Bolt  and  Nut  Mfg.  —  excluding  steel 

mfg.;     excluding   rolling   mill 

operations  3132 

CA 

ZA 

R 

3 

Bone  and  Ivory  Turning  4481 

BH 

ZA 

R 

3 

Bonnet  Frame  Mfg.  —  no  wire  mfg.  2533 

AW 

Z 

R 

3 

Bookbinding  4307 

AW 

z 

R 

3 

Boot  and  Shoe  Machinery  Mfg  ....   3568 

BO 

ZA 

P 

3 

Boot  and  Shoe  Mfg  2660 

BA 

Z 

R 

3 

Boot  and  Shoe  Pattern  Mfg.  —  (not 

• 

available  for  division  of  payroll)  .   2792 

AW 

ZA 

R 

3 

Boot   Blacking  and   Hat   Cleaning 

Establishments  9585 

BA 

YF 

R 

2 

Borax  Mfg  4529 

CO 

ZA 

R 

5 

Bottle  Dealers  (second  hand)  8212 

CH 

ZD 

0 

5 

Bottle  Mfg.  —  no  automatic  blowing 

machines  (not  available  for  divi- 

sion of  payroll)  4111 

BE 

ZA 

R 

3 

Bottle  Mfg.  —  not  otherwise  classified  4114 

BW 

ZA 

R 

3 

Bottling  —  under  pressure  2161 

DB 

ZC 

PA 

3 

Bottling  —  not  under  pressure   (not 

available  for  division  of  payroll)  .  .   2165 

CG 

ZB 

PA 

3 

Bowling  Halls: 

*No  alcoholic  drinks  served  on  the 

premises  9082 

CG 

YF 

R 

3 

*When  alcoholic  drinks  are  served 

on  the  premises  9083 

CG 

YH 

R 

3 

Box  Mfg.  —  cigar  2766 

CC 

ZA 

R 

3 

Box  Mfg.  —  folding  paper  boxes  —  no 

paper  or  paper  board  mfg  4241 

CD 

ZB 

R 

3 

Box    Mfg.  —  solid   paper   boxes  —  no 

paper  or  paper  board  mfg  4240 

CD 

ZB 

R 

3 

Box  Mfg.  —  wood  —  assembling  only  2767 

CP 

ZA 

R 

3 

Box  Mfg.  —  wood  —  mfg.  shooks  and 

assembling  2760 

CZ 

ZC 

R 

3 

Box  Mfg.  —  wood  (wire  bound)  —  no 

box  shooks  mfg.  (not  available  for 

division  of  pavroll)   2765 

CP 

ZA 

R 

3 

*  Additional  charge  for  P.  L.  of  $5 . 00  per  alley. 
15  213 


ILLINOIS. 

SYMBOLS  FOR  COMP.  RATES  AND  THEIR  VALUES. 


AA 

04 

BH    

.74 

CQ  

2.83 

DY.  .  . 

..   11.26 

AB 

06 

BJ 

.77 

CR 

2.96 

DZ 

11.79 

AC 

.08 

BK 

.81 

CS 

3.10 

EA.  .  . 

..   12.36 

AD 

.09 

BL 

.84 

CT 

3.26 

EB.  .  . 

..  12.92 

AE 

.11 

BM 

.87 

CV 

3.40 

EC.  . 

.  .  13.52 

AF 

13 

BO      

.91 

cw  

3.56 

ED.  .  . 

..   14.19 

AG 

,14 

BP 

.94 

CX 

3.73 

EE.  .  . 

..  14.85 

AH 

.16 

BO 

.97 

CY    

3.89 

EF.  .  . 

.  .  15.55 

AJ 

18 

BR  

1.04 

CZ  

4.09 

EG.  .. 

..   16.28 

AK 

19 

BS    

1.07 

DA 

4.29 

EH    .  . 

.  .  17.04 

AL 

91 

BT  

1.14 

DB  

4.49 

EJ.  .  . 

..  17.84 

AM 

,?3 

BV  

1.17 

DC  

4.69 

EK.  .  . 

.  .  18.70 

AO  
AP 

.24 
.26 

BW  
BX 

1.24 
1.30 

DO  
DE 

4.92 
5.16 

EL.  .  . 
EM.  .  . 

..  19.56 
..  20.49 

AQ 

98 

BY  

1.37 

DF  

5.39 

EO.  .  . 

.  .   21.46 

AR 

?9 

BZ  

1.44 

DG.    ... 

5.65 

EP.  .  . 

.  .  22.49 

AS 

31 

CA  

1.50 

DH 

5.92 

EQ.  .  . 

..   23.5a 

AT 

33 

CB.  

1.57 

DJ      ... 

6.19 

ER.  .  . 

.  .   24.64 

AV 

34 

CC  

1.64 

DK 

6.48 

ES.  .  . 

.  .   25.81 

AW 

38 

CD 

1.70 

DL 

6.78 

ET 

27.03 

AX 

41 

CE 

1.80 

DM 

7  11 

EV 

28.33 

AY 

44 

CF  

1.87 

DO 

7.45 

EW 

29.66 

AZ 

47 

CG    

1.97 

DP 

7.78 

EX 

31.05 

BA  

.51 

CH  

2.04 

DO  

8.14 

EY.  .  . 

..  32.51 

BB 

54 

CJ 

2.13 

DR 

8.54 

EZ 

.     34.04 

BC  

.57 

CK  

2.23 

DS.     ... 

8.94 

BD 

61 

CL 

2.37 

DT 

9.37 

BE  

.64 

CM    .    ... 

2.47 

DV      ... 

9.80 

BF  

,67 

CO 

2.57 

DW     .    . 

10.27 

BG  

.71 

CP  

2.70 

DX  

10.77 

214 


MANUAL  PREMIUM  RATES  215 

tion  of  all  of  these  matters  is  well-nigh  impossible. 
The  computation  of  rates  would  be  greatly  simpli- 
fied if  the  contingency  insured  against  were  some  sin- 
gle definite  event  such  as  the  occurrence  of  death.  The 
study  of  a  compensation  schedule,  with  its  multitude  of 
conditions,  indicates  some  of  the  difficulties  of  predict- 
ing the  payments  necessary  under  a  given  law.  Loss 
cost,  on  the  basis  of  the  compensation  schedule,  may 
be  analyzed  as  follows : 

Medical  aid. 

Payments  to  injured   (periodical  or  lump  sum) 

for  dismemberments 

for  disability  of  varying  duration  other  than 

dismemberments 
Last  sickness  and  burial  benefits 
Payments    to    dependents     (periodical    or    lump 

sum) 

based  on  number  of  dependents 

based  on  degree  of  dependency 

based  merely  on  existence  of  dependents. 

When  it  is  realized  that,  in  addition  to  providing  for 
this  complicated  set  of  payments,  it  is  often  necessary 
to  quote  rates  without  experience  under  the  particu- 
lar act  or,  at  best,  with  limited  experience,  the 
magnitude  of  the  problem  becomes  increasingly  evi- 
dent. 

The  allowance  for  expenses  and  profit  is  more  eas- 
ily determined  and  presents  much  less  difficulty  than 
does  loss  cost. 

Factors  to  be  Considered  in  Computing  Probable 


216  COMPENSATION  INSURANCE 

Loss  Cost.2 — i.  Pure  Premium:  .The  pure  premium 
is  the  loss  cost  indicated  by  past  experience  and  is  the 
most  important  of  the  factors  upon  which  rests  the 
probable  future  loss  cost.  Assuming  the  same  com- 
pensation law,  accurate  records  of  past  loss  experience, 
similar  surrounding  conditions,  and  a  wide  exposure, 
this  figure  should  vary  but  little  from  year  to  year. 
Since  these  assumptions  do  not  hold  in  most  cases,  it 
can  serve  only  as  a  basis  for  prediction  and  not  as  an 
actual  measure  of  the  future. 

A  pure  premium  is  expressed  in  terms  of  units  of 
"one  hundred  dollars"  of  payroll.  It  is  the  amount  that 
will  be  given  to  injured  workmen  or  their  dependents,  by 
reason  of  accidents  occurring  during  the  period  which 
the  payroll  covers,  for  each  one  hundred  dollars  of  pay- 
roll expended  during  that  period.  For  illustration :  A 
yearly  payroll  is  $1,000,000;  minor  accidents  occur  which 
will  give  $10,000  to  the  injured,  and  one  serious  accident 
occurs  which  will  give  $6,000.  The  total  benefits  to  the 
workmen  are  $16,000,  and  the  pure  premium  is  $16,000 
divided  by  ($1,000,000  divided  by  $100)  equals  $1.60. 
Let  us  assume  that  the  payroll  for  the  next  year  is  $800,- 
ooo,  that  the  amount  paid  for  minor  accidents  is  $8,000, 
but  that  no  serious  accident  occurs.  The  pure  premium 
will  be  $8,000  divided  by  ($800,000  divided  by  $100) 
equals  $i. 

This  produces  a  drop  in  the  pure  premium  for  the 
second  year,  under  the  first,  of  37^2  per  cent.  If  we  now 
add  the  payrolls  and  costs  of  the  two  years  together  we 

2  The  discussion  of  these  factors  is  based  on  "The  Synthesis 
of  Rates  for  Workmen's  Compensation"  by  Claude  E.  Scatter- 
good.  The  reader  is  referred  to  this  paper  for  a  more  extended 
treatment. 


MANUAL  PREMIUM  RATES  217 

get  a  payroll  of  $1,800,000;  $18,000  for  minor  accidents, 
and  $6,000  for  serious  accidents.  The  pure  premium  now 
becomes  $24,000  divided  by  ($1,800,000  divided  by  $100) 
equals  $1.33-)-.  This  is  a  closer  approximation  to  what 
the  average  pure  premium  will  be  in  the  long  run,  than 
that  of  either  year  alone,  because  the  exposure  (payroll) 
is  greater,  and  the  exposure  acts  as  a  "flywheel,"  tending 
to  keep  the  pure  premium  from  varying.  The  larger 
the  exposure  the  smaller  the  variation  in  pure  premium.3 

The  following  quotation  shows  the  difficulty  of  se- 
curing dependable  pure  premiums  from  experience : 

The  readiness  to  go  by  a  small  volume  of  experience 
is  one  of  the  peculiar  errors  of  early  underwriting  in  this 
country.  When  the  Massachusetts  Insurance  Department 
compiled  and  published  its  famous  schedule  Z,  for  1913, 
showing  the  compensation  experience  for  separate  classifi- 
cations, it  very  wisely  decided  that  below  a  certain  mini- 
mum of  exposure  the  experience  was  not  worth  present- 
ing. The  accepted  minimum  was  very  small,  only 
$500,000,  and  yet  only  134  out  of  the  possible  1,500  were 
able  to  pass  that  test.  But  such  an  exposure  is  hope- 
lessly inadequate  to  produce  even  an  indication  of  an 
accurate  rate. 

The  average  pure  premium  in  Massachusetts  was  some 
36  cents.  Let  us  assume  that  an  ordinary  fatal  accident 
would  cost  $2,400.  One  fatal  accident,  therefore,  in  a 
certain  classification  represents  a  pure  premium 
of  48  cents  on  half  a  million  of  exposure,  24 
cents  on  a  million  of  exposure.  One  fatal  accident, 
therefore,  may  double  the  pure  premium  in  many  a  class. 

3  Scattergood,  C.  E.,  "The  Synthesis  of  Rates  for  Workmen's 
Compensation/'  pp.  4-5. 


218  COMPENSATION  INSURANCE 

The  purely  accidental  fact  that  of  two  fatal  accidents  in 
two  different  classifications,  one  happened  to  a  married 
employee,  and  another  to  an  unattached  bachelor,  may 
produce  a  wide  margin  between  the  two  costs  and  two 
premiums.  Only  then  may  we  begin  to  speak  of  a  de- 
pendable experience  when  at  least  one  accident  will  not 
seriously  disturb  the  average  pure  premium.  If  a  cer- 
tain classification  has  a  pure  cost  of  $i,  then  an  exposure 
of  $10,000,000  may  be  sufficient,  because  one  $2,000  or 
$3,000  loss  will  not  affect  the  pure  premium  more  than 
2  per  cent  or  3  per  cent.  But  in  less  hazardous  occupa- 
tions, where  the  pure  premium  may  be  ten  or  twenty 
cents,  a  very  much  larger  exposure  will  be  necessary  to 
produce  results  that  are  actuarially  dependable.  And  if 
that  is  so,  how  long  will  it  take  some  of  the  smaller  states 
to  accumulate  such  volume  of  experience  ?  For  instance  : 
When  will  Nebraska  be  able  to  determine  its  pure  pre- 
mium on  "suspenders  without  buckles,"  or  Rhode  Island 
on  "butchers'  supplies"  ?  And  yet  rates  must  be  quoted 
for  either,  and  moreover  they  must  be  adequate  and  equi- 
table.4 

To  overcome  this  difficulty  classifications  whose 
hazards  are  considered  analogous  may  be  grouped  and 
the  experience  of  one  state  may  be  checked  against  the 
experience  of  another  which  presents  similar  under- 
lying conditions.  But  where  judgment  enters  into  the 
computation  it  cannot  be  expected  that  the  pure  pre- 
mium will  be  as  accurate  as  where  the  exposure  is  wide 
enough  to  give  a  dependable  average. 

2.  Underestimate  of  Outstanding  Losses  : 

4  Rubinow,  I.  M.,  "Scientific  Methods  of  Computing  Compensa- 
tion Rates,"  pp.  12-13 


MANUAL  PREMIUM  RATES  219 

In  compensation  insurance,  when  a  loss  is  incurred,  it 
is  not  always  paid  for  all  at  once,  but  the  beneficiary  be- 
comes entitled  to  a  series  of  payments,  occurring  at  regu- 
lar intervals,  together  with  the  cost  of  his  medical  and 
surgical  attendance,  for  the  period  and  limitation  allowed 
by  the  compensation  law.  Loss  experience  as  of  a  given 
date  will  consist  of  at  least  these  four  divisions : — 

(a)  Accidents  where  the  losses  have  been  completely 
paid. 

(b)  Accidents  where  the  losses  have  been  paid  in  part, 
where  portions  of  the  indemnities  payable  have  not  yet 
fallen  due,  and  for  which  reserves  must  be  maintained. 

(c)  Accidents  happening  within  the  period  of  the  pay- 
roll exposure  which  have  not  yet  been  reported  or  which 
will,   but   have  not  yet,   developed   into   claims. 

(d)  Accidents  considered  as  completely  disposed  of, 
which    will    be    reopened    and    additional    indemnities 
paid. 

The  pure  premiums  must  contain  not  only  the  losses 
actually  paid,  but  also  the  amounts  which  it  is  estimated 
will  become  payable  on  accidents  occurring  within  the 
period  considered.  When  it  is  considered  that  some  of 
these  payments  continue  throughout  the  lifetime  of  the 
beneficiary,  some  for  life  or  until  the  remarriage  of  the 
beneficiary,  others  for  a  period  of  time  provided  the  bene- 
ficiary survive  the  period,  and  others  for  a  period  of  time 
whether  the  beneficiary  survive  or  not;  and  when  the 
above  conditions  are  modified  by  new  beneficiaries  being 
found  to  claim  indemnities  at  the  deaths  of  the  original 
beneficiaries,  it  may  be  appreciated  what  a  difficult  prob- 
lem presents  itself  with  regard  to  cases  known  to  be  out- 
standing losses.  In  addition  to  this,  an  allowance  must 
be  estimated  for  claims  not  known  at  the  time  of  valua- 
tion of  the  pure  premiums,  but  which  should  be  included ; 


220  COMPENSATION  INSURANCE 

and  another  estimate  must  be  made  as  to  claims,  con- 
sidered settled,  which  will  be  reopened.5 

It  has  been  found  in  the  past  that  attempts  to  esti- 
mate losses  in  addition  to  those  already  paid  under 
a  policy  have  resulted  in  large  margins  of  error.  Es- 
timates have  proved  inadequate  to  the  final  satisfac- 
tion of  claims  and  it  is  generally  agreed  that  present 
estimates  probably  err  on  the  side  of  insufficiency. 
The  error  can  be  determined  only  approximately  but 
careful  rate-making  would  necessarily  take  it  into  ac- 
count. 

3.  Increasing  Cost  of  the  Act :    A  priori  reasoning 
seems  to  indicate  that  as  workmen  become  more  fa- 
miliar with  the  operation  of  workmen's  compensation 
acts  they  will  present  more  claims  and  the  losses  will 
become  greater,  even  though  the  terms  of  the  act  re- 
main unchanged. 

Experience  in  foreign  countries  and  in  the  United 
States  bears  out  this  conclusion  and  hence  we  might 
logically  include  in  the  probable  future  loss  cost  an 
amount  to  reflect  this  tendency. 

4.  Effect  of  Merit  Rating :     Schedule  and  experi- 
ence rates  may  be  applied  to  individual  enterprises  and 
the  difference  between  the  manual  rate  for  the  clas- 
sification and  the  individual  rate  is  supposed  to  meas- 
ure the  variation  from  the  average  hazard.     Correctly 
applied  this  would  result  in  increases  and  decreases 
which  would  balance  each  other  so  that  the  average 
rate  for  the  classification  would  still  be  the  manual 

5  Scattergood,  C.  E.,  op.  cit.,  p.  8. 


MANUAL  PREMIUM  RATES 

rate — provided  that  improvements  in  conditions  had 
not  reduced  the  average  hazard  to  a  degree  lower  than 
that  on  the  basis  of  which  the  manual  rates  were  com- 
puted. Even  granting  this  last  possibility,  the  effect 
of  merit  rating  in  reducing  average  rates  deserves  rec- 
ognition so  long  as  it  continues.  The  New  York  Com- 
pensation Inspection  Rating  Board  reported  a  reduc- 
tion of  15.5  per  cent  in  premiums  during  the  year  1915 
as  a  result  of  this  tendency.6 

5.  Catastrophe  Hazard :  The  possibility  of  catas- 
trophes or  of  events  which  will  involve  the  payment 
of  extraordinarily  large  sums  for  losses  resulting  from 
a  single  accident  or  group  of  accidents  demands  spe- 
cial treatment,  since  catastrophes  are  of  such  infre- 
quent occurrence  that  they  do  not  furnish  data  for 
compiling  reliable  average  experience.  Any  allowance 
for  this  factor  will  necessarily  be  in  the  nature  of  an 
estimate. 

Factors  Causing  Variation  in  Loss  Cost  Between 
States. — i.  Laws:  While  all  compensation  acts  are 
based  on  the  same  general  principle,  they  are,  as  has 
been  pointed  out  in  preceding  chapters,  far  from  uni- 
form in  their  schedules  of  compensation  and  in  their 
general  provisions  defining  the  conditions  of  liability. 
Further,  a  few  acts  expressly  cover,  or  have  been  con- 

6  New  York  Journal  of  Commerce,  January  14,  1916.  A  recent 
report  (Nov.  23,  1916)  of  the  Pennsylvania  Compensation  Rating 
and  Inspection  Bureau  shows  a  net  increase  of  .106%  from  orig- 
inal inspections  for  schedule  rating  and  a  net  decrease  of  4.73% 
from  re-inspections.  This  decrease  might  well  be  justified  by  the 
general  improvement  induced  by  schedule  rating.  Reports  'on 
merit  rating  in  New  York  under  plans  adopted  during  1916  indi- 
cate a  reduction  of  about  four  per  cent  from  manual  rates. 


222  COMPENSATION  INSURANCE 

strued  to  cover,  industrial  disease.  The  insurance 
companies  must  take  into  account  these  differences, 
since  the  provisions  of  the  acts  are  the  principal  deter- 
minant 'of  loss  cost,  and  any  scientific  scheme  of  rates 
will  make  allowance  for  this  factor. 

2.  Accident  Frequency :  The  accident  rate  varies 
between  states  as  well  as  between  industries  and  plants, 
and  will  affect  the  loss  cost  since  a  greater  number 
of  accidents  involves  a  greater  probability  of  compen- 
sation claims  and  awards. 

The  Expense  and  Profit  Factors? — To  be  strictly 
accurate  the  amount  allowed  for  expenses  should  vary 
between  states  and  between  classifications  so  that  each 
group  would  have  assigned  to  it  the  portion  of  the 
expenses  of  carrying  on  the  business  for  which  it  is 
responsible.  Likewise  an  ideally  just  scheme  of  rates 
would  exact  the  same  percentage  of  profit  from  each 
group,  a  percentage  which  would  be  only  sufficient  to 
induce  the  insurer  to  provide  facilities  for  insurance 
and  to  increase  steadily  the  efficiency  of  the  insuring 
organization. 


CHAPTER  XVIII 

MANUAL  PREMIUM  RATES  (Continued) 

CALCULATION  OF  MANUAL  RATES 

The  Problem. — The  accuracy  of  insurance  rates  de- 
pends on  the  exactness  with  which  past  experience  can 
be  ascertained  and  on  the  reliability  of  ascertained  ex- 
perience as  a  guide  to  the  future.  Compensation  rate- 
makers  are  handicapped  alike  by  the  difficulties  of  se- 
curing experience  figures  of  value  and  by  changing 
conditions  which  make  these  figures  of  less  worth  as  a 
guide.  When  a  new  compensation  act  is  passed  in- 
surers are  obliged  to  quote  rates  which  of  necessity 
are  not  based  on  the  operation  of  the  particular  act; 
as  older  acts  are  amended  rates  are  quoted  without  ex- 
act knowledge  of  the  effect  of  the  amendments.  In- 
dustrial activity,  the  attitude  of  employer  and  em- 
ployee, types  of  machinery,  methods  for  the  applica- 
tion of  power,  and  other  conditions  are  in  a  constant 
state  of  flux  and  all  have  their  effect  on  the  losses 
under  compensation  policies. 

Even  had  compensation  acts  been  in  force  over  a 
long  period  in  all  states,  each  state  would  lack  ade- 
quate experience  in  a  large  proportion  of  the  fifteen 
hundred  classifications  of  industry  for  which  rates 
must  be  set,  for  no  one  state  would  have  sufficient  pay 
roll  exposure  to  create  dependable  averages  in  all. in- 
dustries. 

223 


COMPENSATION  INSURANCE 

It  is,  however,  the  nature  of  the  losses  under  com- 
pensation policies  which  does  most  to  render  rate- 
making  a  difficult  problem.  The  complex  schedule  of 
payments  of  the  various  acts  makes  provision  for  com- 
pensation which  may  be  continued  for  several  years,  in 
some  cases  even  to  the  death  of  the  recipient.  All 
such  payments  are  charged  to  losses  under  the  policy 
which  covered  the  risk  at  the  time  of  the  accident. 
Since  the  first  policies  were  written  in  1911,  and  the 
large  majority  since  then,  it  follows  that  a  large  por- 
tion of  these  charges  for  deferred  losses  must  be  in 
the  nature  of  estimates,  subject  to  the  inevitable  error 
which  accompanies  estimates.  The  tendency  of  the 
error  in  this  case  was  considered  on  pages  218-220. 

The  Machinery  of  Rate-making. — The  efforts  which 
are  being  made  to  solve  the  problem  of  securing  cor- 
rect premium  rates  are  commensurate  with  its  com- 
plexities and  difficulties.  Individual  insuring  organi- 
zations have  created  statistical  and  actuarial  depart- 
ments and  are  devoting  much  study  to  the  subject. 
The  stock  insurance  companies  maintain  the  National 
Workmen's  Compensation  Service  Bureau,  an  organi- 
zation the  purposes  of  which  are  the  gathering  of  sta- 
tistics of  workmen's  compensation  insurance,  the 
translating  of  these  statistics  into  manual  rates,  and 
the  development  of  systems  of  schedule  and  experience 
rating.  This  central  bureau  has  branches  in  numerous 
states  and  its  activities  extend  throughout  the  coun- 
try. Certain  states 1  have  created  bureaus  for  the 
regulation  of  rates ;  manual,  schedule,  and  experience ; 

1  California,  New  York,  Massachusetts,  and  Pennsylvania. 


MANUAL  PREMIUM  RATES 

and  the  approval  of  rates  by  the  insurance  commis- 
sioner is  required  in  several  instances.  Some  states 
determine  the  rates  for  their  state  funds  by  legislative 
action,  a  method  which  tends  to  maladjustment.2 

Cooperation  is  absolutely  essential  to  justice  in  the 
making  of  rates  and  it  is  particularly  desirable  that 
such  cooperation  embrace  all  of  the  parties  in  interest. 
Even  though  much  had  been  accomplished  in  the  vari- 
ous bureaus,  it  was  evident  that  greater  uniformity 
and  accuracy  could  be  attained  by  a  more  comprehen- 
sive group  and,  at  the  suggestion  of  Insurance  Com- 
missioner Hardison  of  Massachusetts,  the  Joint  Con- 
ference on  Workmen's  Compensation  Rates  met  in 
New  York  City  during  the  last  months  of  1915.  At 
this  conference  two  state  rating  bureaus  were  repre- 
sented by  committees  of  their  company  members  (both 
mutual  and  stock)  ;  the  Workmen's  Compensation 
Service  Bureau  by  a  company  committee ;  and  five 
state  insurance  departments  by  official  delegates.3 
Committees  were  chosen  to  consider  specialized 
branches  of  rate-making,  and  opinion  from  every  angle 
was  brought  to  bear  on  rate  problems.  It  is  to  be 
hoped  that  such  conferences  may  become  a  permanent 


2  This  practice  obtains  in  Montana,  Nevada,  Oregon,  Washing- 
ton,  and   Wyoming.     In   Wyoming  the  law  provides   that   each 
employer  shall  contribute  two  per  cent  of  his  annual  pay  roll  to 
the  Industrial  Accident  Fund.    This  disregard  of  relative  hazards 
is  symptomatic  of  the  generally  unscientific  nature  of  the  Wyom- 
ing act. 

3  The  two  state  bureaus  were  those  of  Massachusetts  and  New 
York.    The  state  departments  represented  were  those  of  Califor- 
nia, Maryland,  Massachusetts,  New  York  and  Pennsylvania.   The 
Industrial  Commission  of  Wisconsin  was  also  represented. 


226  COMPENSATION  INSURANCE 

feature  of  compensation  rate-making.  The  present 
rate  manual  owes  much  to  the  labors  of  this  confer- 
ence. To  quote  from  the  special  report  of  the  New 
York  State  Insurance  Department,  'Taken  as  a  whole, 
the  work  of  the  Conference  is  a  long  step  forward  in 
the  application  of  scientific  rating  methods  to  the  busi- 
ness of  workmen's  compensation  insurance." 

METHOD  OF  CALCULATING  MANUAL  RATES4 

The  several  factors  which  might  properly  be  con- 
sidered by  an  insurer  in  the  calculation  of  a  rate  have 
been  described;  where  practically  possible  all  factors 
applicable  to  a  given  rate  should  be  considered.  At 
present  all  of  the  factors  mentioned  in  the  preceding 
chapter  have  their  influence  in  the  calculation  of  rates 
except  "underestimate  of  outstanding  losses,"  "effect 
of  merit  rating,"  and  "profit."  The  first  of  these  fac- 
tors represents  a  tendency  which  may  disappear  with 
improved  methods  of  computing  reserves  for  unpaid 
losses;  the  second,  a  tendency  which  more  scientific 
rating  will  probably  eliminate ;  but  the  third  should  be 
considered,  at  least  by  the  stock  companies.  It  is  ex- 
pected, of  course,  that  rates  as  now  calculated  will 
yield  a  sufficiently  liberal  income  to  pay  all  losses  and 
to  leave  a  margin  of  profit,  even  though  these  three 
items  are  not  specifically  considered. 

The  influence  which  the  several  factors  exert  on  the 
rate  are  expressed  by  differentials  and  loadings.  A 

4  The  method  here  described  is  that  used  in  the  computation  of 
rates  for  the  major  part  of  compensation  insurance  written  in  the 
United  States.  Departures  from  this  method  are  in  matters  of 
detail  rather  than  of  principle. 


MANUAL  PREMIUM  RATES 

differential  is  unity  plus  or  minus  a  percentage  figure, 
the  percentage  figure  being  a  variable  which  is  to  be 
applied  to  a  basic  quantity  in  order  to  make  it  repre- 
sentative of  new  conditions.  For  example,  if  it  were 
determined  that  the  risk  of  damage  from  fire  in  all 
classes  of  buildings  in  community  "A"  was  fifty  per 
cent  greater  than  in  community  "B"  and  the  rate 
of  loss  were  known  in  "B"  for  each  class,  the  rate 
for  a  particular  class  in  "A"  would  be  found  by  multi- 
plying the  rate  for  the  same  class  in  "B"  by  the  differ- 
ential, 1.50.  A  loading  is  a  flat  amount  or  a  percent- 
age added  to  the  expected  annual  loss  cost  to  provide 
for  contingencies,  expenses,  or  profit. 

Basic  Pure  Premiums. — The  first  step  in  securing 
a  manual  rate  is  the  determination  of.  the  basic  pure 
premium;  a  quantity  representative  of  the  loss  experi- 
ence under  the  original  Massachusetts  law,  checked  by 
statistics  from  other  states  where  compensation  has 
been  in  force  for  a  considerable  length  of  time  and 
where  the  figures  are  reliable.  This  pure  premium  is 
used  as  a  basis  for  calculating  rates  for  all  other  states, 
since  it  is  regarded  as  the  most  accurate  expression 
of  loss  cost  experience  which  it  is  possible  to  secure 
at  this  stage  of  development  of  the  business. 

Law  Differential. — Since  the  provisions  of  the  laws 
governing  compensation  payments  vary  from  one  state 
to  another  it  is  necessary  to  modify  the  basic  pure 
premium  in  order  to  determine  what  the  probable  loss 
experience  would  have  been  under  the  act  of  each 
state.  The  degree  of  modification  is  expressed  by  law 
differentials  which  measure  variations  between  the 
schedules  of  compensation. 


228  COMPENSATION  INSURANCE 

Law  differentials  are  calculated  by  the  application 
of  the  compensation  schedule  of  the  various  acts  to  the 
Standard  Table  of  Accident  Gravity.  The  Standard 
Table  5  was  constructed  by  Dr.  I.  M.  Rubinow  and 
was  the  result  of  a  careful  study  of  American  and 
European  statistics  of  accident  gravity  which  seemed 
to  show  that  the  physical  results  of  accidents  aver- 
aged much  the  same  everywhere;  that  out  of  a  very 
large  number  of  accidents  the  same  number  would 
result  in  death,  in  dismemberments  of  various  kinds, 
in  total  disability  of  one  week,  two  weeks,  three  weeks, 
etc.,  and  in  partial  disability  of  varying  duration.  On 
the  basis  of  these  statistics  the  table  shows  per  100,000 
accidents : 

i.  Number  of  fatal  cases. 

2..  Number  of  dismemberments,  distributed  accord- 
ing to  their  nature. 

3.  Number  of  cases  of  permanent  total  disability 

other  than  dismemberments. 

4.  Number  of  cases  of  permanent  partial  disability 

other  than  dismemberments,  distributed  ac- 
cording to  the  percentage  of  disability. 

5.  Number  of  cases  of  temporary  disability,  distrib- 

uted according  to  duration. 

Another  table  furnishes  data  of  the  number  and  de- 
gree of  dependents  in  fatal  cases. 

The  probable  cost  of  100,000  accidents  under  a 
given  compensation  schedule  may  be  found  by  comput- 
ing the  payments  which  would  be  made  on  account  of 
each  group  of  deaths  or  disablements  in  the  table, 

6  See  p.  229. 


STANDARD  DISTRIBUTION  OF  ACCIDENTS  TABLE 

Fatal  cases 932 

Dismemberments 2,323 

1.  Loss  of  left  arm 64 

2.  Loss  of  right  arm .  95 

3.  Loss  of  left  hand 50 

4.  Loss  of  right  hand 61 

5.  Loss  of  left  thumb 29 

6.  Loss  of  right  thumb 30 

7.  Loss  of  left  index 59 

8.  Loss  of  right  index 69 

9.  Loss  of  left  middle  finger 26 

10.  Loss  of  right  middle  finger 31 

1 1.  Loss  of  left  ring  finger 14 

12.  Loss  of  right  ring  finger 17 

13.  Loss  of  left  little  finger 32 

14.  Loss  of  right  little  finger 34 

15.  Loss  of  thumb  and  one  or  more  fingers,  left  hand 14 

16.  Loss  of  thumb  and  one  or  more  fingers,  right  hand 17 

17.  Loss  of  two  or  more  fingers,  left  hand 63 

18.  Loss  of  two  or  more  fingers,  right  hand 66 

19.  Loss  of  one  phalange  of  left  thumb 55 

20.  Loss  of  one  phalange  of  right  thumb 62 

21.  Loss  of  phalange  of  left  index 83 

22.  Loss  of  phalange  of  left  middle  finger 52 

23.  Loss  of  phalange  of  right  index 93 

24.  Loss  of  phalange  of  right  middle  finger 53 

25.  Loss  of  phalange  of  ring  finger,  left  hand 25 

26.  Loss  of  phalange  of  ring  finger,  right  hand 19 

27.  Loss  of  phalange  of  left  little  finger 18 

28.  Loss  of  phalange  of  right  little  finger 17 

29.  Loss  of  fingers  accompanied  by  injuries  of  other  fingers,  left 

hand 172 

30.  Loss  of  fingers  accompanied  by  injuries  of  other  fingers,  right 

hand 173 

31.  Loss  of  one  leg 129 

,    32.  Loss  of  both  legs 3 

33.  Loss  of  toes 57 

34.  Loss  of  one  eye 465 

35-  Loss  of  one  eye  with  injury  to  the  other 62 

36.  Loss  of  both  eyes ', 14 

Permanent  total  disability  other  than  dismemberments no 

Permanent  partial  disability  other  than  dismemberments 2,442 

Leading  to  Disability  of 

i-io  Per  Cent 672 

11-20                   x 728 

21-30                   378 

31-40                   265 

41-50                   179 

51-60                   92 

61-70                   92 

7 1-80 36 

Temporary  disability 94,193 

Not  over  i  week 37,225 

i-  2  weeks 24,019 

2-3 12,145 

3-4             7,002 

4-  5              4.452 

5-6              2,693 

6-7 1,747 

7-8              ...t 1,178 

8-9              921 

9-io              586 

lo-n              444 

H-I2              355 

12-13              285 

13-26 927 

Over  26  weeks 214 

Total 100,000 

(From  A  Standard  Accident  Table  as  a  Basis  for  Compensation  Rates,  by  I.  M. 
Rubinow. — Spectator  Co.,  New  York,  1915). 

16  229 


230  COMPENSATION  INSURANCE 

the  result  being  expressed  in  terms  of  "week's  wages," 
the  usual  unit  of  payment.  To  this  is  added  the  cost 
of  medical  and  surgical  services,  also  expressed  in 
the  form  of  "week's  wages."  The  result  is  the  total 
of  compensation  payments  for  the  100,000  acci- 
dents. 

A  comparison  of  the  computed  totals  for  the  origi- 
nal Massachusetts  Schedule  and  for  the  schedules  of 
other  acts  will  give  the  probable  relative  cost  of  100,- 
ooo  accidents.  Suppose  that  it  was  found  that  100,000 
accidents  in  Massachusetts  would  entail  payments  of 
500,000  "week's  wages,"  while  in  Oklahoma  the  cost 
would  be  600,000  "week's  wages."  Obviously  the  cost 
in  Oklahoma  is  twenty  per  cent  greater  than  in  Mas- 
sachusetts and,  other  things  being  equal,  the  loss  ex- 
perience of  Massachusetts  multiplied  by  1.20  will  give 
the  loss  experience  in  Oklahoma.  This  figure,  1.20,  is 
the  law  differential  for  Oklahoma  and  is  applied  to 
the  basic  pure  premium  to  secure  a  pure  premium  for 
Oklahoma.6 

Accident  Frequency. — This  new  pure  premium  is 
computed  on  the  assumption  that  the  rate  of  accidents 
is  the  same  in  all  states  as  in  Massachusetts.  Al- 
though thoroughly  reliable  statistics  of  accident  fre- 
quency are  wanting,  those  which  are  available  indi- 
cate the  advisability  of  applying  a  differential  to 
the  pure  premium  in  some  states.  If  the  accident 
frequency  in  a  given  state  is  ten  per  cent  greater 
than  in  Massachusetts  the  differential  would  be 
i.i. 


6  The  law  differentials  recommended  to  the  1917  conference  are 
given  on  p.  231. 


LAW  DIFFERENTIALS 

California 1.66 

Wisconsin 1.60 

Michigan   1.04 

Minnesota   1.25 

Illinois 1.37 

Iowa 1. 12 

Nebraska    . 1.19 

Indiana 1.13 

Colorado 985 

Montana   i.oi 

Ohio    i  .70 

New  Jersey 97 

Rhode  Island i.oi 

Kentucky    1.44 

Vermont 87 

Connecticut    1.28 

Maryland    1.33 

Maine    1.02 

Pennsylvania    1.02 

Oklahoma 1.20 

Louisiana    . .  . . 1.13 

Kansas    94 

New  York   1.89 

Massachusetts    1.57 


231 


COMPENSATION  INSURANCE 

Increasing  Cost  of  the  Act. — This  factor  is  recog- 
nized by  a  differential  in  every  state  except  New  Jer- 
sey, where  the  figures  show  a  practically  constant  loss 
experience. 

Industrial  Diseases. — By  the  use  of  English  and 
American  statistics  and  of  a  liberal  amount  of  judg- 
ment it  has  been  decided  that  one  per  cent  of  the  pure 
premium  should  be  added  to  all  classifications  to  cover 
the  cost  of  compensation  on  account  of  industrial 
diseases  in  states  where  they  are  covered  by  the 
law. 

A  further  charge  is  made  in  the  form  of  an  addition 
varying  from  one  cent  to  twenty-two  cents  per  one 
hundred  dollars  of  payroll  for  classifications  which 
present  specific  disease  hazards — for  example,  dusty 
trades  or  industries  where  lead  is  used.7 

Catastrophes. — There  is  no  adequate  information 
on  which  to  base  an  exact  catastrophe  charge  but  on 
the  basis  of  such  experience  as  was  available  a  load- 
ing of  one  cent  per  one  hundred  dollars  of  payroll 
was  adopted  for  all  states  except  New  York,  where 
the  loading  is  two  cents.  The  higher  loading  is  justi- 
fied by  the  extremely  liberal  permanent  disability  and 
death  benefits  which  are  granted  by  the  law  of  that 
state. 

Expense. — That  portion  of  the  report  of  the  Com- 
mittee on  Loadings  and  Differentials  of  the  Joint  Con- 
ference which  dealt  with  the  expense  factor  will  best 

7  For  an  explanation  of  the  methods  and  statistics  used  in 
arriving  at  this  conclusion,  see  Maddrill,  "The  Compensation  Cost 
of  Occupational  Disease." 


MANUAL  PREMIUM  RATES  233 

explain  the  method  which  has  been  adopted  for  in- 
cluding this  item : 

In  making  provision  for  expense  loading,  the  Com- 
mittee has  deemed  it  to  be  its  proper  function  to  investi- 
gate the  actual  needs  of  the  business  as  at  present  con- 
ducted, believing  that  any  movement  seeking  to  reduce 
expenses,  however  desirable,  is  an  administrative  ques- 
tion rather  than  an  actuarial  one. 

The  Committee  finds,  after  a  careful  study  of  the  dis- 
bursements of  representative  companies,  both  as  to  their 
total  workmen's  compensation  business  and  of  such  busi- 
ness as  was  reported  to  the  states  of  New  York,  Massa- 
chusetts and  Wisconsin,  that  the  average  expense  ratio 
based  upon  the  transactions  of  the  calendar  year  1914, 
has  been  approximately  40  per  cent  of  the  compensation 
premium  income.  An  analysis  of  this  ratio  shows  that 
it  is  made  up  of  certain  major  divisions  of  expense  as 
follows : 

Acquisition  expense I7-S% 

General  administration  expense 9.0 

Including : 

Payroll  audits 2.0 

All  other  7.0 

Service  expenses I i.o 

Inspection  and  accident  prevention 4.0 

Investigation  and  adjustment  of  claims.     7.0 


Taxes,  licenses,  etc 2.5 


Total 40.0% 


234  COMPENSATION  INSURANCE 

The  above  grouping  of  expenses  is  presented  by  the 
Committee,  in  order  to  demonstrate  that  in  considering 
the  possibility  of  reducing  the  expense  ratio,  certain  of 
the  items  such  as  "Taxes,  licenses,  etc.,"  are  not  sus- 
ceptible to  reduction  by  the  companies,  and  that  other 
items,  such  as  "Service  expenses,"  should  not  be  reduced, 
if  efficiency  will  be  thereby  impaired.  It  is  evident,  there- 
fore, that  such  reductions  as  may  be  effected,  must  be 
confined  principally  to  "acquisition  expenses"  and  "gen- 
eral administration  expenses." 

The  Committee  finds  further  that  the  expenses  natu- 
rally divide  themselves  into  three  general  classes: 

(a)  Such  expense  items   as   inspections   and   payroll 
audits  do  not  vary  with  the  gross  premium  rate, 
nor  aie  they  incurred  as  a  percentage  thereof. 

(b)  Acquisition  expense  and  taxes  are  incurred  as  a 
percentage  of  the  gross  premium  rate,  and  vary 
directly  therewith. 

(c)  Items    such    as    expenses    of   administration    and 
claim  adjustment  are  properly  chargeable  in  part 
in  both  of  the  foregoing  ways. 

In  order  to  give  proper  effect  to  these  considerations, 
the  Committee  undertook  to  determine  what  differences 
in  loading  should  be  recognized  in  the  calculation  of 
rates  for  the  various  compensation  states.  It  was  found 
impracticable  to  give  full  effect  to  the  wide  differences 
which  theoretical  exactitude  would  demand.  It  was  felt 
to  be  necessary,  however,  to  recognize  that  a  flat  loading 
for  all  states  is  improper  and  inequitable  and  certain 
groupings  were  adopted  for  the  purpose  of  producing 
reasonable  and  practical  results.  Accordingly  the  Com- 
mittee recommends  the  following  scale  of  expense  load- 
ings: 


MANUAL  PREMIUM  RATES  235 

For  states  having  Percentage  State 

a  differential  of  loadings  group 

Less  than    1.25  4^l/2%  I 

1.25  to   1.49  40%  2 

1.50  to  1.74  3?y2%  3 

1.75  and  over  35%  4 

These  results  were  applied  to  the  probable  relative 
premium  income  for  1916  and  were  found  to  reproduce 
approximately  40  per  cent  loading  on  the  average.8 

Typical  Rate  Calculation. — Suppose  that  it  is  de- 
sired to  secure  the  rate  in  a  given  state  for  a  classifi- 
cation whose  basic  pure  premium  is  $1.00.  Let  us 
assume  the  following  values  for  the  various  factors  to 
be  used : 

Law  Differential 1.20 

Increasing  Cost i.io 

Accident  Frequency 1.05 

Expense  Loading 42^2% 

Catastrophe  Loading i$ 

The  formula  for  securing  the  State  Multiplier,  i.  e., 
the  figure  which,  applied  as  a  multiplier  to  the  basic 
pure  premium,  will  give  the  final  manual  rate  for  the 
given  state,  is  as  follows  :  9 

8  Proceedings  of  the  Joint  Conference  on  Workmen's  Compen- 
sation Rates,  pp.  24-25.     In  one  state,  Pennsylvania,  an  expense 
loading  graded  according  to  the  premium  rate  has  been  adopted. 

9  The  method  of  introducing  the  expense  factor  may  be  ex- 
plained by  the  following  example  : 

x   =  the  expense  loading  percentage 

y  =  amount  to  which  the  expense  percentage  is  applied 

z    =  y  —  amount  of  the  expense  loading. 

z  +  xy  =  y 

z  =  y  -  xy 

z  =  y  (i  -  x) 


y 


236  COMPENSATION  INSURANCE 

/       Law       \   /  Increasing  \   /         Accident         \ 

lui-   r       -   VPifferential/   VCost  Factor^   ^Frequency  Factor/        /Catastrophe\ 
i— (Expense  Loading)  +  (    Loading    ) 

Substituting  the  assumed  values : 

State  Multiplier  =  (l  -2O>  ^ '  ^  -°5)  +  ic  -  2.42  + 

The  state  manual  rate  for  a  classification  of  which 
the  basic  pure  premium  is  $1.00  would  therefore  be 

$2.42.10 

Criticism  of  Present  Methods  of  Calculation. — It  is 
generally  agreed  that  manual  rates  are  not  ideally  ac- 
curate and  that  present  methods  of  classifying  indus- 
tries are  not  entirely  just  to  all  employers.  It  may 
be  said,  however,  that,  considering  the  youth  of  the 
business,  its  rapid  growth,  and  the  consequent  neces- 
sity of  constructing  a  system  of  rates  to  meet  what 
was  practically  an  emergency  demand,  the  present 
rates  are  as  accurate  as  could  be  expected.  It  is  true 
that  competitive  practices  have  had  their  influence,  but 
fortunately  that  influence  is  lessening.  The  ground- 
work has  been  laid  for  building  a  scheme  of  charges 
actuarially  correct  and  a  new  branch  of  the  actuarial 
profession  has  emerged  which  promises  to  place  the  de- 
mands of  science  above  the  older  requirements  of  in- 
dividualistic skilled  guess  work.  Only  when  these 
ends  have  been  attained  will  an  equitable  system  of 
rates  exist. 

10  Since  this  chapter  was  written  new  factors  have  been  in- 
troduced into  the  rate  calculation  to  allow  for  the  increased 
industrial  activity  and  consequent  increased  accident  rate  brought 
about  by  war  conditions  and  also  for  the  effect  of  merit  rat- 
ing, profit,  and  the  loss  record  of  the  individual  state.  The 
basic  method  of  procedure  has  not  been  changed. 


MANUAL  PREMIUM  RATES  237 

One  general  criticism  may  be  applied  to  every  fea- 
ture of  the  rate  calculation — statistics  have  been  used 
as  general  guides  to  judgment  rather  than  as  a  direct 
indication  of  expected  results.  This  has  been  done, 
not  because  such  methods  are  considered  ideal  by  rate- 
makers,  but  because  of  the  paucity  of  statistics  bearing 
directly  on  the  questions  which  must  be  answered. 
Again,  practical  necessity  has  forced  the  general  appli- 
cation of  certain  factors  which  should  probably  be 
varied  to  suit  specific  conditions.  Loadings  and  dif- 
ferentials have  been  based  on  statistics  from  sources 
whose  relation  to  the  insurance  of  workmen's  compen- 
sation in  the  United  States  has  not  always  been  direct, 
and  the  conclusions  from  these  statistics  have  been 
applied  in  many  cases  to  all  states  and  to  all  industries 
alike..  More  accurate  knowledge  would  result  in  mod- 
ification to  suit  particular  states  and  particular  indus- 
tries. 

The  Future. — While  the  general  principles  embodied 
in  the  present  method  of  rate  calculation  are  funda- 
mental, it  is  probable  that  particular  methods  will 
sooner  or  later  undergo  considerable  modification. 
These  methods,  adopted  to  meet  an  emergency,  are 
necessarily  but  preliminary  to  working  out  a  more 
equitable  and  dependable  scheme. 

One  of  the  first  developments  to  be  expected  and 
desired  is  the  use  of  the  experience  of  each  state  as 
the  basis  for  its  own  rates.  Predicating  rates  for  one 
state  on  experience  in  another  is  unsatisfactory,  though 
necessary  under  the  circumstances.  No  state  will  de- 
velop sufficient  exposure  in  all  classifications  to  serve 
as  an  adequate  basis,  and  wherever  the  exposure  is  in- 


238  COMPENSATION  INSURANCE 

sufficient  rates  will  be  based  on  the  experience  of  other 
states,  but  each  state  should  eventually  furnish  a  reli- 
able experience  in  its  principal  classifications. 

The  Standard  Table  is  necessarily  somewhat  rough, 
based  as  it  is  on  data  from  widely  separated  sources, 
and  it  will  probably  require  adjustment  to  American 
conditions  if  it  is  to  be  of  service  in  the  future.  It  is 
probable  also  that  separate  tables  should  be  computed 
for  each  industry  or  for  each  of  several  groups  of 
industries  if  the  demands  of  accuracy  are  to  be  sat- 
isfied. 

Eventually  we  may  expect  the  factor  of  "increasing 
cost"  to  disappear,  when  the  practice  of  workman's 
compensation  becomes  standardized,  when  adequate 
reserves  are  required,  and  when  workmen  become 
more  thoroughly  acquainted  with  its  operation. 

In  general,  it  may  be  said  that  time  will  bring  con- 
stantly increasing  knowledge  of  the  problems  of  com- 
pensation insurance,  that  experiment  will  reveal  the 
defects  as  well  as  the  sound  features  of  various  meth- 
ods of  procedure,  that  loss  experience  will  develop 
a  statistical  basis  for  prediction.  Accuracy  in  the 
computation  of  rates  depends  on  these  developments 
and  should  progress  pari  passn  with  them. 

REFERENCES 

RUBINOW,  I.  M.  "Scientific  Methods  of  Computing  Com- 
pensation Rates,"  Proceedings  of  the  Casualty  Actu- 
arial and  Statistical  Society  of  America.  Vol.  I, 
pp.  10-23. 

A  Standard  Accident  Table  as  a  Basis  for  Compen- 
sation Rates.  Spectator  Co.,  New  York  (1915). 
Originally  published  in  Quarterly  Publications  of  the 


MANUAL  PREMIUM  RATES  239 

American    Statistical    Association    (March,    1915). 
Pp.  358-415. 

MOWBRAY,  ALBERT  H.  "How  Extensive  a  Payroll  Expo- 
sure is  Necessary  to  Give  a  Dependable  Pure  Pre- 
mium," Ibid.,  Vol.  I,  pp.  24-31. 
"The  Determination  of  Pure  Premiums  for  Minor 
Classifications  on  which  the  Experience  Data  is  In- 
sufficient for  Direct  Estimate,"  Ibid.,  Vol.  II,  pp. 

124-133- 

MAGOUN,  W.  N.  "The  Essential  Factors  in  the  Compu- 
tation of  the  Cost  of  Workmen's  Compensation," 
Ibid.,  Vol.  I,  pp.  173-189. 

OLIFIERS,  EDWARD.  "Statistics  Necessary  for  Computing 
Net  Compensation  Rates,"  Ibid.,  Vol.  II,  pp.  202-207. 

SCATTERGOOD,  C.  E.  "Cost  Accounting  in  Casualty  In- 
surance," Ibid.,  Vol.  II,  pp.  253-263. 

MADDRILL,  JAMES  D.  "The  Compensation  Cost  of  Occu- 
pational Disease,"  Ibid.,  Vol.  II,  pp.  208-227. 

DOWNEY,  E.  H.  "The  Classification  of  Industries  for 
Workmen's  Compensation  Insurance,"  Ibid.,  Vol.  II, 
pp.  10-32. 

FISHER,  ARNE.  "Outline  of  a  Method  for  Determining 
Basic  Pure  Premiums."  Ibid,  Vol.  II,  pp.  394-406. 

SCATTERGOOD,  C.  E.  "The  Synthesis  of  Rates  for  Work- 
men's Compensation,"  Economic  World,  Jan.  8,  1916. 

Report  on  Workmen's  Compensation  Insurance  of  The 
Commission  to  Investigate  Practices  and  Rates  in  In- 
surance. Boston  (1915). 

Report  of  the  Joint  Special  Recess  Committee  on  Work- 
men's Compensation  Rates  and  Accident  Prevention, 
Boston  (1917). 

Proceedings  of  the  Joint  Conference  on  Workmen's  Com- 
pensation Rates.  Insurance  Department,  State  of 
New  York,  Albany  (1915). 


CHAPTER  XIX 
MERIT  RATING1 

Since  manual  rates  are  average  rates  representing 
the  average  hazard  of  all  plants  in  each  classification 
of  industry  it  is  obvious  that  they  do  not  necessarily 
reflect  accurately  the  hazard  of  any  particular  plant. 
Conditions  in  some  plants  are  superior  to  the  normal 
for  the  industry  while  conditions  in  others  are  sub- 
normal. The  application  of  the  manual  rate  to  all 
plants  within  a  classification  should  produce  an  equita- 
ble contribution  from  the  industry  to  the  general  in- 
surance fund  but  it  would  work  injustice  to  the  indi- 
vidual contributors.  To  measure  comparative  hazard 
within  classifications  and  to  distribute  equitably  the 
burden  of  premium  payment  among  individual  em- 
ployers, systems  of  merit  rating  have  been  adopted. 

A  merit  rate  is  a  rate  on  an  individual  risk  which 
reflects  the  deviation  of  hazard  of  the  risk  from  the 
average  hazard  of  risks  in  the  same  classification.  If 
the  hazard  is  less  than  the  average  a  discount  from 
the  manual  rate  is  allowed;  if  greater,  an  additional 
charge  is  made;  while  risks  of  average  hazard  take 
the  manual  rate.  Thus  each  policyholder  contributes 

1  Merit  rating  was  used  to  some  extent  in  setting  rates  for  em- 
ployer's liability  insurance,  but  it  has  been  systematically  devel- 
oped only  in  connection  with  compensation  insurance.  The  pres- 
ent chapters  therefore  deal  with  practice  in  the  latter  field. 

240 


MERIT  RATING 

to  the  general  fund  an  amount  based  on  the  relative 
hazard  of  the  industry  in  which  he  is  engaged  and  on 
the  relative  hazard  of  his  plant  as  compared  with  the 
plants  of  other  policyholders  conducting  the  same  type 
of  business.  Relative  hazard  is  a  measure  of  the  prob- 
able loss  cost  to  the  insuring  organization  and  is, 
therefore,  a  proper  basis  for  rating. 

Bases  for  Merit  Rating. — Loss  cost  in  compensa- 
tion insurance  is  dependent  upon  the  frequency  and 
gravity  of  industrial  accidents  and  therefore  merit  rat- 
ing is  based  on  a  consideration  of  industrial  conditions 
affecting  the  rate  of  accidents  and  their  seriousness. 
The  application  of  merit  rating  requires  that  these  con- 
ditions in  each  plant  be  weighed  in  their  relation  to  the 
probable  loss  cost  of  the  average  plant  and  the  re- 
sult expressed  in  credits  for  superior,  and  in  charges 
for  inferior,  conditions.  Where  conditions  affecting 
accidents  are  capable  of  inspection  this  is  accomplished 
through  schedule  rating.  Where  such  underlying 
conditions  are  revealed  only  by  the  accident  record  of 
the  plant  experience  rating  is  used. 

1     SCHEDULE  RATING 

Definition. — Schedule  rating  is  a  method  of  deter- 
mining the  rate  of  premium  applicable  to  an  individual 
plant  by  means  of  charges  added  to,  and  credits  sub- 
tracted from,  the  manual  rate ;  these  charges  and  cred- 
its to  be  ascertained  by  an  inspection  of  the  visible 
characteristics  of  the  risk.2 

aThis  definition  covers  the  method  of  schedule  rating  now  in 
general  use.  Schedule  rating  might  be  applied  by  assuming  a  rate 


COMPENSATION  INSURANCE 

The  Schedule. — The  first  requirement  of  a  system 
of  schedule  rating  is  a  plan  of  operation.  The  plan 
now  in  general  use  is  embodied  in  The  Industrial  Com- 
pensation Rating  Schedule  which  was  adopted  by  the 
First  Conference  on  Schedule  Rating  on  July  27,  1916. 
This  schedule  is  a  compilation  of  standards  of  safety 
for  industrial  plants  to  be  used  as  a  guide  for  inspect- 
ing and  rating  such  plants  for  workmen's  compensa- 
tion insurance.  A  standard  is  set  for  practically  every 
feature  of  a  risk  which  affects  the  accident  hazard 
and  an  appropriate  modification  of  the  manual  rate 
is  indicated  for  the  presence  or  absence  of  standard 
conditions.  Conformance  to  certain  standards  is  rec- 
ognized as  super-normal  and  involves  a  credit  or  re- 
duction of  the  rate,  while  lack  of  conformity  to  nor- 
mal standards  is  penalized  by  a  charge.  In  a  few 
cases  provision  is  made  for  both  credits  and  charges. 

The  scope  of  the  schedule  is  best  indicated  by  its 
various  sections: 

1.  Buildings 

2.  Fire  Hazard 

3.  Floors 

4.  Floor  Openings 

5.  Wall  Openings 

6.  Hoistway 

7.  Stairs 

8.  Elevated  Runways  and  Platforms 

for  a  perfect  plant,  adding  charges  for  defects  in  actual  plants ; 
or  by  assuming  a  rate  for  the  poorest  possible  plant,  giving  cred- 
its for  good  points.  The  schedule  used  for  rating  coal  mines 
is  based  on  the  assumption  of  a  perfect  mine. 


MERIT  RATING  243 

9.  Boilers — High  Pressure 

10.  Pressure  Apparatus 

11.  Steam  Engines 

12.  Electrical  Equipment 

13.  Explosive  Hazard  Charges 

14.  Acid  Carboys 

15.  Travelling  Crane 

1 6.  Elevator 

17.  Abrasive  Wheel 

1 8.  Power  Transmission  Equipment 

19.  Welfare  and  Health 

20.  Machine  Hazard 

21.  Machine — Employee  Ratio 

22.  Safety  Organization,   Inspection  Service 

and  Education 

23.  Maintenance  and  Inspection 

24.  First  Aid  and  Hospital. 

Under  each  of  these  headings  are  grouped  standards, 
rules,  charges,  and  credits  which  enable  the  inspector 
and  rater  to  arrive  at  proper  modification  of  the  man- 
ual rate  for  a  given  risk.3 

Types  of  Hazard. — In  the  Industrial  Schedule  three 
types  of  hazard  are  recognized :  ( i )  the  catastrophe 
hazard,  (2)  the  hazard  incident  to  the  operation  of  a 
plant  and  affecting  all  employees,  and  (3)  the  hazard 
incident  to  operation  but  to  which  only  a  limited  num- 
ber of  employees  are  exposed  at  any  one  time. 

Catastrophe  hazards,  such  as  boiler  explosions,  fires, 
collapse  of  buildings,  etc.,  affect  all  plants  and  all  in- 

3  A  specimen  page  from  the  schedule  is  given  on  page  244. 


SCHEDULE 


39 


CHARGES 

CREDITS 

| 

s 

3 

19f    Credit    where    those    Pouring    or 

4 

1 

1 

I 

« 

Handling   Molten  Metal  wear  Leggings 

(2 

£ 

i 

PH 

and  Congress  Type  Shoes. 

1% 

(1)   Credit  under  this  section  shall  apply  only 

to    classifications    marked    with    an    (L). 

(See  table  on  last  pages  of  schedule).  * 

20.     Machine  Hazard 

20a  Charge    on    premium    equal    to 

one-half  (Yd  Manual  rate  for  each  Power 

Driven     Machine     not     equipped     with 

effective  Start  ing  and  Stopping 
Device,  not  to  exceed  $2.00  per  machine. 

3^  of 

rate 

Rule 

(1)    This  includes  Abrasive  wheels  and  non- 

productive machines  except  grindstones, 

blowers  and  continuously  running  pumps 

and  compressors. 

(2)   This  charge  shall  not  apply  to  machines 

driven  by  belts  one   (1)   inch  or  less  in 

width    or    one-half    (1A)    inch    or   less   in 

diameter. 

(3)   The  total  charge  shall  not  exceed  5%  of 

the  premium  based  on  Manual  rate. 

(4)   This  charge  shall  not  apply  to  individual 

machines  in  a  group  comprising  one  oper- 

ating unit  so  inter-related  that  the  start- 

ing or  stopping  of  any  one  machine  will 

interfere  with  the  operations  or  process. 

This    rule    finds    special    application    in 

industries  such  as 

Grist  Mills 

Malsters 

Stone  Crushing 

Definition 

An  effective  Starting  and  Stopping  De- 

vice is  an  individual  Belt  Shifter,  Clutch 

or  Switch   which  will  effectively  control 

the  Machine. 

*  See  p.  247. 


244 


MERIT  RATING  245 

dustries  equally.4  Charges  for  their  presence  or  cred- 
its for  their  absence  should  therefore  be  the  same  for 
each  unit  of  exposure  and  the  schedule  provides  that 
flat  amounts  shall  be  added  to  or  deducted  from  the 
manual  rate.  For  example,  there  is  a  charge  of  one 
cent  "where  employees  are  in  buildings  more  than  one 
story  in  height  not  provided  with  fire  fighting  appli- 
ances" ;  while  an  "effective  automatic  sprinkler  system" 
gives  a  credit  of  one  cent  on  the  rate. 

The  manual  rate,  applicable  to  the  entire  payroll  and 
representing  average  hazard,  is  modified  by  a  percent- 
age addition  or  reduction  to  make  allowance  for  vari- 
ation from  the  average  in  particular  plants  wherever 
all  employees  are  affected.  For  example,  a  charge  of 
one  per  cent  of  the  manual  rate  is  required  "where 
ventilation,  .  .  .  throughout  the  plant,  is  not  suffi- 
cient to  carry  off  all  the  dust  or  gases."  Individual 
motor  drive  for  all  machines  carries  a  credit  of  ten 
per  cent.  In  this  way  charges  and  credits  are  pro- 
portioned to  the  size  of  the  plant  and  to  the  hazard  of 
the  industry  as  reflected  in  the  manual  rate. 

Where  only  a  limited  number  of  employees  can  be 

exposed  to  a  hazard  at  any  one  time  the  risk  involved 

is  confined  to  the  probability  of  injury  to  the  exposed 

employees.     In  a  given  plant  this  type  of  hazard  is 

^ective  in  proportion  to  the  number  01  points  at  which 

4  In  this,  and  in  following  paragraphs,  the  assumptions  on  the 

isis  of  which  the  schedule  was  constructed  are  stated  as  facts 

the  interest  of  clarity.    The  qualifications  should  be  made  that 

~e  assumptions  are   mostly   rough   approximations,   and  that 

racy  would  demand  a  much  mare  elaborate  classification  of 

res  and  credits  according  to  the  type  of  plant  under  consid- 

n. 

17 


246  COMPENSATION  INSURANCE 

it  occurs,  the  hazard  at  each  point  being1  the  same  for 
all  plants.  Hence  charges  and  credits  are  expressed 
as  a  flat  amount  for  each  point  at  which  the  hazard 
is  present  and  are  applicable  to  the  entire  premium 
payment  required  for  the  plant.  Examples  are  found 
in  the  charge  of  one  dollar  "for  each  set  of  tight  and 
loose  pulleys  on  power  transmission  not  provided  with 
a  standard  belt  shifter";  and  in  the  credit  of  two  dol- 
lars for  each  circular  saw  "where  point  of  operation 
is  guarded  according  to  standard." 

For  most  items  of  hazard  specific  charges  or  cred- 
its are  listed  and  it  is  necessary  only  to  turn  to  the 
proper  page  of  the  schedule  to  learn  what  modifica- 
tion is  to  be  applied  to  the  manual  rate.  A  few 
items,  however,  are  given  special  treatment,  an  ex- 
planation of  which  is  necessary.  Such  are  the  ma- 
chine-employee ratio;  safety  organization,  inspection 
service,  and  education;  use  of  eye  protectors,  leg- 
gings, and  respirators;  and  maintenance  and  inspec- 
tion. 

Machine-employee  Ratio. — The  larger  the  number 
of  machines  per  one  hundred  employees  the  greater  is 
the  probability  of  the  occurrence  of  injury.  For  this 
reason  a  policyholder  for  whose  plant  the  ratio  of 
machines  to  employees  is  higher  than  the  ratio  for  an 
average  plant  in  the  same  industry  is  subject  to  an 
extra  charge,  and  vice  versa. 

A  table  gives  the  standard  number  of  machines  per 
one  hundred  employees  engaged  in  "actual  manufac- 
turing  operations"    or   in    work    "strictly   incidental" 
thereto.5 
See  p.  247. 


Key; 


E  =  Eye  Protector 
L  =  Leggings 
R  =  Respirators 
M  =  Maintenance  and 
Inspection  of  Chains, 
Hooks  and  Ropes 


CLASSIFICATION 


Machine — per 
employee  ratio 

Number  of 
machines  per 
100  employees 


Absorbent  Cotton  Mfg 

Acetic  Acid  Mfg 

Acetylene  Gas  Machine  Mfg 69 

Acetylene  Gas  Tank  Charging  Station. 

R  Acid  Mfg.  (N.O.C.) 

Adding  Machine  Mfg 71 

Advertising  Novelties  Mfg.    (not  ex- 
clusively wood,  metal  or  celluloid) ...         66 
Advertising  Signs  Mfg.  (celluloid) .... 

Advertising  Signs  Mfg.  (glass) 46 

Advertising  Signs  Mfg.  (metal) ...         46 

E  Aerated  Water  Mfg 

Aeroplane  Mfg.  (shop  only) 

R  Agate  and  Enamel  Ware  Mfg 40 

E     M  Agricultural  Machinery  Mfg 

E     M  Road  or  Street  Making  Mch.  Mfg. . 

E     M  Threshing  or  Husking  Mch.  Mfg ...         82 

E     M  Traction  Engine  or  Power  Plow  Mfg.         82 

Wagon  Mfg 85 

M  Machine  Shop  (no  foundry) 

ELM          Foundries  (iron) 

ELM          Foundries  (malleable  iron) 

Woodworking 

E  Agricultural  Tools  Mfg.  (hand  tools) . .       100 

Alcohol  Mfg 

MEL       Aluminum  Smelting 

Aluminum  Ware  Mfg.  (from  sheet  al- 
uminum)         100 

R  Ammonia  Mfg 

Analytical  Chemists  (in  shop) 

M    E  Anchor  Mfg : 

Aniline  and  Alizarine  Mfg 

MEL       Arms    Mfg.     (heavy    ordnance,     not 
charging  shells) 


247 


248  COMPENSATION  INSURANCE 

Percentage  charges  and  credits,  not  to  exceed  seven 
and  one-half  per  cent  of  the  rate  in  either  case,  are 
worked  out  according  to  the  following  formulae : 6 

(Standard  minus  Actual  \ 
-  I  —  i  =  %  of  rate  credit. 
Standard  J 

/Actual  minus  Standard  \ 

Sy2l  -  -\—l  =  %oi  rate  charge. 

y  Standard  J 

Suppose  that  a  plant  manufacturing  agate  and 
enamel  ware  has  thirty  machines  per  one  hundred  em- 
ployees, or  ten  less  than  the  standard  for  that  indus- 
try. The  credit  for  this  plant  would  be  computed  as 
follows : 

'  40  --  30  \ 

I —    I    =    1.12 


40  / 

A  credit  of  one  and  twelve  one-hundredths  per  cent 
would  be  applied  to  the  manual  rate  for  this  item. 

Safety  Organisation,  Inspection  Service,  and  Edu- 
cation.— For  the  application  of  the  credits  provided 
under  this  heading  (there  are  no  charges)  plants  are 
divided  into  five  classes,  according  to  the  number  of 
employees.7  Standards  of  organization,  inspection, 

6  In  plants  of  less  than  ten  employees  this  charge  or  credit  does 
not  apply. 

7  Class  A,      i  to      50  employees  inclusive. 
Class  B,    51  to    150  employees  inclusive. 
Class  C,  151  to     500  employees  inclusive. 
Class  D,  501  to  1000  employees  inclusive. 
Class  E,  over  1000. 


MERIT  RATING  249 

and  education  are  prescribed  for  each  class  and  a 
credit  of  five,  four,  and  one  per  cent  respectively,  al- 
lowed. The  higher  the  class,  the  more  elaborate  the 
standards  set.  If  a  plant  does  not  measure  up  to  the 
required  standard  in  all  three  of  these  features  a 
smaller  credit  may  be  allowed  for  those  activities 
which  are  properly  cared  for. 

Use  of  Eye  Protectors,  etc.;  Maintenance  and  In- 
spection.— The  use  of  eye  protectors,  leggings,  and  res- 
pirators for  protection  of  the  employee's  person,  and 
inspections  of  chains,  hooks,  and  ropes,  are  particu- 
larly important  in  certain  industries  and  credit  will  be 
allowed  for  compliance  with  prescribed  standards  for 
those  industries  only.  Classifications  in  which  such 
credit  may  be  given  are  indicated  in  a  table  which  ac- 
companies the  schedule.8 

Formula  Rating. — A  few  classifications  covering 
the  manufacture  of  metal  goods  in  which  stamping 
presses  are  used  are  subject  to  formula  rating  exclu- 
sively. A  formula  has  been  worked  out  in  terms  of 
manual  rates,  machine  workers,  total  employees, 
stamping  press  hazard,  and  total  number  of  working 
machines  which,  when  applied,  will  give  the  final  rate 
reflecting  the  conditions  present  in  a  plant.  Rating 
experts  are  not  entirely  agreed  on  the  validity  o£ 
the  method  and  a  complete  explanation  of  its  applica- 
tion is  not  warranted  by  the  scope  of  the  present 
volume. 

Application  of  the  Schedule. — All  manufacturing 
risks  are  subject  to  schedule  rating  provided  the  most 
accurate  estimate  of  payroll  available  yields  a  premium 

5  See  p.  247. 


250  COMPENSATION  INSURANCE 

of  fifty  dollars  or  over.  The  payroll  of  executive  offi- 
cers, clerical  office  force,  and  salesmen  is  not  con- 
sidered, as  the  manual  rate  applicable  to  them  is. not 
subject  to  modification. 

In  certain  states  where  state  rating  bureaus  exist, 
the  schedule  is  applied  by  these  organizations  and 
the  results  placed  at  the  service  of  the  insurers.  In 
other  states  individual  insurers  apply  the  schedule  or 
act  through  the  National  Workmen's  Compensation 
Service  Bureau,  a  stock  company  organization,  which 
maintains  subsidiary  bureaus  in  a  large  number  of 
states. 

The  manual  classification  to  which  a  plant  belongs 
having  been  determined,  the  first  step  in  the  applica- 
tion of  the  schedule  is  the  inspection  of  the  plant.  The 
inspector  is  provided  with  a  report  blank  in  which  all 
information  necessary  for  rating  must  be  entered. 
Headings  and  items  in  this  report  form  correspond 
to  those  found  in  the  schedule. 

From  the  inspector  the  report  goes  to  a  rating  clerk 
who  computes  the  charges  and  credits  for  each  item 
and  applies  the  result  to  the  manual  rate.  Total 
charges  and  total  credits  are  finally  expressed  in  terms 
of  dollars  added  to,  or  subtracted  from,  the  manual 
rate  and  the  modified  rate  resulting  from  these  opera- 
tions becomes  the  rate  applicable  to  the  risk.  Suppose 
that  the  total  credits  amount  to  $.089,  while  the  total 
charges  are  $.05,  the  manual  rate  being  $.20.  The  net 
credit  is  $.039  which,  when  applied  to  the  manual  rate 
gives  a  modified  rate  of  $.i6i.9 

As  very   few  charges  or  credits  are  expressed  in 

°A  specimen  rating  sheet  is  reproduced  on  p.  251. 


MERIT  RATING 


terms  of  "dollars  on  rate"  it  is  necessary  to  convert 
other  expressions  into  these  terms.  A  five  per  cent 
modification  of  a  manual  rate  of  one  dollar  becomes 

The  Industrial  Compensation  Inspecting  and  Rating  Schedule. 

RATING    SHEET 


1  -  ,-     ,1L   Johnson  Clothing  M"Fg-    fln- 


, Towi.-Baltimora Stal*....Ud.»....._ 


He  fe- 
lto  of 


CHARGES 

ITEM 
No. 

SCHEDULE 

CREDITS 

fete 

PERCENT 
Of  HATE 

DOLLARS 

DOLLARS 

PREMIUM 

PCM  CENT 
OT  BATE 

OPIATE 

ON 

Dale.. 

O 

9.00 

Buildings  

O 

Total 

o 

Fire 

Hazard  

Off 

o 

1    OO 

Floo 

rs  

o 

Floor  Openings  

o 

g.pn 

Wa 

Openings  

o 

2.50 

Hoi 

ways  

0 

Stars  

o 

Total 

.60 

Elev 

ated  Runways  . 

o 

Boil 

srs  

.02 

1 

Pre 

sure  Apparatus 

o 

11 

Ste« 

m  Engines  — 

12 

tlec 

trical  Equipme 

t  

0 

13 

bxp 

osive  Hazard.  . 

0 

0 

14. 

Acic 

Carboys  

15 

Cranes  

1   00 

16 

Elevators  ,  

17 

Abrasive  Wheels  

o 

4.00 

18 

Row 

er  Transmission 

5  63 

0 

198 

Gon 

era!  Order.... 

o 

19b 

Lif] 

t  

3  00 

o 

19c 

Ven 

ilation  

o 

19d 

bye 

Protectors  .... 

o 

1'Je 

Kes 

air  ators  

o 

1 

f 

Leggings  and  Shoe*  

o 

i 

Machine  Hazard  

o 

4.20 

0 

21 

Mac 

nine  Ratio  (  .  3i 

) 

3.75 

o 

O 

22 

Safety  Organization  In-    ) 
spection  and  Education   t" 

5.00 

o 

o 

23 

Mai 

itenanceandlns 

pec'n.. 

o 

0 

24, 

Firs 

Aid  and  Hospit 

at  

1.00 

o 

22.60 

TOTALS  

u*a 

.04 

4.  an 

"  ,65 

.05 

DOLLARS    ON    RATE  .... 

-Os< 

Q4 

01 

—  .uay    " 

.05 
T039 

%            25 

*     .05 

CHARGE 

Physical 

CREDIT 

j    06g 

%          "*:&. 

% 

$ 

CHARGE 

Moral 

CREDIT 

$.018 

%       9 

% 

$ 

CHARGE 

Experience 

CREDIT 

$ 

% 

°T>    25 

$     n<? 

CHARGE 

TOTAL 

CREDIT 

$    OflQ 

%     44 

% 

$ 

CHARGE 

NET  TOTAL 

CREDIT 

$.039 

%     19 

CLASSIFICATION 

I- C.lftlihtng..Mfg._ 

2. 


Average  Rate  $ 


Total  $ 


five  cents.  A  ten  dollar  charge  or  credit  on  the  en- 
tire premium  paid  for  a  risk  involving  a  ten-thousand 
dollar  payroll  becomes  a  ten  cent  change  on  the  man- 


COMPENSATION  INSURANCE 

ual  rate,  which  is  applied  to  each  one  hundred  dollars 
of  payroll. 

Conclusion. — The  necessity  of  schedule  rating  is 
unquestioned.  Not  only  is  justice  promoted  by  re- 
quiring employers  to  contribute  insurance  premiums 
in  proportion  to  the  hazard  of  their  plants,  but  a  direct 
and  stimulating  reward  is  offered  for  accident  pre- 
vention. The  charges  and  credits  now  used  are,  how- 
ever, estimates,  and  as  such  probably  contain  large 
elements  of  error  which  must  be  corrected  as  com- 
pensation insurance  develops  and  as  statistics  accumu- 
late with  which  the  judgment  of  raters  may  be  checked. 
The  present  schedule  was  the  work  of  a  conference  of 
the  ablest  men  in  the  field  and  their  continued  efforts 
should  secure  a  schedule  which  is  not  only  accurate 
but  demonstrably  so.  Particularly  the  tendency  to  pro- 
duce an  overplus  of  credits  in  practical  application 
should  be  corrected  in  so  far  as  it  does  not  represent 
an  actual  average  improvement  of  hazard,10  and  the 
schedule  should  be  elaborated  to  include  a  considera- 
tion of  the  relative  importance  of  each  item  of  hazard 
in  different  industries  and  in  different  types  of  plant. 

10  V.  supra.   Page  221,  footnote. 


CHAPTER  XX 

MERIT  RATING  (Continued) 
EXPERIENCE  RATING 

Definition. — Experience  rating  is  a  method  of  de- 
termining the  rate  applicable  to  a  given  risk  by  modi- 
fying the  manual  rate,  the  loss  ratio  of  the  risk  being 
used  as  a  basis  for  the  modification;  If  the  rate  de- 
duced by  this  method  applies  to  the  period  during 
which  the  experience  has 'developed  it  is  called  retro- 
spective; if  it  applies  to  a  succeeding  period  it  is  called 
prospective. 

Purpose. — The  justification  of  experience  rating,  if 
it  is  to  be  found,  must  rest  on  its  contribution  to  sci- 
entifically accurate  measurement  of  risk.  Those  who 
support  this  method  of  rating  argue  that  there  are 
intangible  elements  in  the  operation  and  administra- 
tion of  every  plant  which  schedule  rating  cannot  meas- 
ure because  they  are  not  revealed  by  inspection;  that 
their  existence  is  evidenced  by  the  varying  loss  ra- 
tios of  plants  of  apparently  the  same  physical  hazard; 
and  that  the  proper  measure  of  their  effect  on  the 
hazard  is  to  be  found  in  the  loss  record  of  the  individ- 
ual risk.1  This  is  felt  to  be  particularly  true  of  con- 
tracting, public  service,  and  miscellaneous  risks  which 

1  These  intangible  elements  are  referred  to  as  the  moral  hazard 
or  the  morale  of  the  plant. 

253 


254  COMPENSATION  INSURANCE 

are  not  subject  to  schedule  rating  and  which  offer  their 
loss  record  as  the  only  evidence  on  which  to  base  merit 
rates.  Advocacy  of  experience  rating  has  not  always 
been  unmixed  with  a  desire  to  use  it  for  competitive 
advantage  in  the  quotation  of  rates  and,  therefore, 
proposals  for  its  adoption  are  often  viewed  with  sus- 
picion as  well  as  criticism  by  its  opponents.  There  is, 
however,  undoubtedly  a  large  weight  of  expert  opinion 
which  favors  experience  rating,  but  among  its  pro- 
ponents there  are  wide  differences  of  opinion  on  spe- 
cific schemes  for  its  application. 

Requirements  for  a  Scientific  Plan  of  Experience 
Rating. — Admitting  the  validity  of  the  general  princi- 
ple, certain  requirements  of  a  scientific  plan  of  experi- 
ence rating  may  be  indicated  as  generally  agreed  upon : 

1.  Experience  rating  should  be  applied  only  to  risks 
large  enough  to   furnish  a  loss  record  indicative  of 
"hazard  deviation"  as  distinguished  from  "chance  de- 
viation,"2 i.  e.,  there  should  be  a  sufficiently  large  ex- 
posure to  produce  averages  of  a  certain  degree  of  de- 
pendability.   Whether  size  of  risk  should  be  measured 
by  amount  of  premium  alone  or  by  both  premium  and 
payroll  is  a  matter  of  dispute. 

2.  Maximum  limits  should  be  set  on  debits  and  cred- 
its so  that  the  application  of  the  plan  will  not  result  in 
a  serious  depletion  of  income  for  the  insurance  carrier 
or  in  so  heavy  a  drain  on  the  insured  that  he  will  in 
fact  be  denied  the  protection  for  which  he  has  paid 
a  premium. 

2  For  the  terms  quoted  the  author  is  indebted  to  Mr.  Joseph 
H.  Woodward's  paper  on  "The  Experience  Rating  of  Workmen's 
Compensation  Risks." 


MERIT  RATING  255 

3.  The  maximum  charge  or  credit  permitted  should 
vary  with  the  size  of  the  risk,  the  larger  the  risk  the 
higher  the  maximum. 

4.  The  plan  should  be  compulsory  for  all  risks  com- 
ing within  its  terms  in  order  to  avoid  discrimination 
and  competitive  sharp  practice. 

5.  The  plan  should  be  administered  by  an  impartial 
body  to  protect  the  interests  of  all  parties. 

The  New  York  Plan. — The  plan  adopted  by  the 
Compensation  Inspection  Rating  Board  of  New  York 
to  take  effect  June  30,  1916,  embodies  all  of  these 
requirements  and  may  be  said  to  represent  the  major- 
ity, although  not  the  unanimous,  opinion  of  the  ad- 
vocates of  experience  rating. 

Under  this  plan  all  risks  which  show  a  completed 
period  of  insurance  under  the  New  York  act  of  two 
years  or  over  are  subject  to  experience  rating  pro- 
vided they  have  produced  an  earned  premium  of  at 
least  $500  for  the  two  years  and,  in  the  case  of  manu- 
facturing risks,  have  a  payroll  exposure  of  at  least 
$100,000.  For  contracting  and  public  service  risks  the 
minimum  payroll  is  $50,000.  The  past  experience 
of  such  risks,  ascertained  by  the  calculation  of  loss  ra- 
tios, "serves  as  a  basis  for  determining  the  modifi- 
cation in  rates  to  be  applied  for  the  renewal  effective 
June  3Oth,  1916,  or  thereafter."  The  plan  is,  there- 
fore, prospective. 

Calculation  of  Loss  Ratio, — The  total  losses  of  each 
risk  are  computed  by  adding  the  medical  cost  to  the 
claim  cost  for  the  experience  period.  Medical  cost  is 
found  by  multiplying  the  total  number  of  notices  of 
injury  by  twelve  dollars,  the  assumed  average  cost  per 


256  COMPENSATION  INSURANCE 

notice.  To  ascertain  claim  cost  use  is  made  of  a  table 
of  values  for  compensable  accidents.  For  dismember- 
ment cases  the  statute  provides  for  payment  of  com- 
pensation to  be  made  for  seven  and  one-half  to  three 
hundred  and  twelve  weeks,  depending  upon  the  na- 
ture of  the  dismemberment.  Their  cost  will  be  deter- 
mined by  multiplying  the  statutory  number  of  weeks 
in  each  case  by  two-thirds  of  the  injured  man's  wages, 
to  be  not  less  than  five,  nor  more  than  fifteen  dollars, 
the  compensation  payment  provided  by  the  act.  For 
fatal  accidents,  total  permanent  disability  cases,  and 
all  other  compensable  accidents,  average  periods  of 
duration  of  three  hundred  and  twenty-four,  six  hun- 
dred and  twenty-four,  and  eight  weeks,  respectively, 
have  been  assumed.  In  each  case  the  average  num- 
ber of  weeks  is  multiplied  by  the  compensation  payable 
each  week  as  above. 

Having  determined  the  claim  cost  and  the  medical 
cost,  and  having  added  them  together,  the  total  cost 
is  divided  by  the  total  payroll  exposure  for  the  risk 
to  determine  the  loss  per  hundred  dollars  of  payroll 
or  the  pure  premium  for  the  risk. 

The  pure  premium  is  then  divided  by  the  manual 
rate  (or  average  rate  if  the  risk  is  assigned  to  more 
than  one  classification)  to  determine  the  loss  ratio. 
(The  average  rate  is  determined  by  multiplying  the 
total  payrolls  for  the  experience  period  for  each  clas- 
sification involved,  by  the  present  manual  rate  for  the 
classification,  thus  determining  a  theoretical  premium ; 
the* sum  of  the  theoretical  premiums  is  then  divided  by 
the  total  payroll  to  determine  the  average  rate.) 

Suppose,  for  example,  that  the  experience  of  a  given 


MERIT  RATING  257 

risk  for  which  the  total  payroll  is  $175,000,  the  aver- 
age rate  $0.571,  and  the  earned  premium  $1,000, 
shows  these  results: 

Medical    Cost $72 

Claim  Cost 278 


Total  Losses $350 

Dividing  the  total  losses  by  the  total  payroll : 

$350  -5-  175,000  =  .2%  =  $.20  per  $100.00  of  payroll. 

With  an  average  or  manual  rate  of  .571  per  $100 
of  payroll,  this  represents  a  loss  ratio  of  thirty-five 
per  cent. 

Neutral  Zone. — Risks  which  show  a  loss  ratio  of 
forty  to  sixty-five  per  cent  inclusive  are  not  entitled 
to  a  modification  of  the  manual  rate.  Within  this 
"neutral  zone"  deviations  from  the  average  are  not 
considered. 

Maximum  Debits  and  Credits. — As  risks  increase 
in  size  their  loss  experience  becomes  more  reliable  as 
an  index  of  hazard.  Accordingly  the  maximum  allow- 
able debits  and  credits  are  increased. 

For  risks  with  earned  premium  of  $500,  the  maxi- 
mum debit  or  credit  is  5  per  cent.  For  risks  with  earned 
premium  of  $5,000  the  maximum  debit  or  credit  is  20  per 
cent.  Between  these  two  points  the  maximum  debits  or 
credits  are  graded  proportionately. 

To  determine  the  maximum  debit  or  credit  for  risks 
producing  an  earned  premium  of  more  than  five  hun- 
dred dollars  and  less  than  five  thousand  dollars  the 
following  formula  is  used : 


258  COMPENSATION  INSURANCE 

P  —  500 

5  +   =  MC  or  MD 

300 

P  =  Earned  premium 
MC  =  Maximum  credit 
MD  =  Maximum  debit 

In  the  case  assumed  above :  3 

1000  —  500 

5  +  -=62/3 

300 

Six  and  two-thirds  per  cent  is  the  maximum  credit  for 
a  risk  with  an  earned  premium  of  a  thousand  dol- 
lars. 

Computation  of  Actual  Debits  and  Credits.— 
For  loss  ratio  equal  to  40  per  cent,  no  credit  is  allowed. 
For  loss  ratio  equal  to  zero,  maximum  credit  is  allowed. 
Between  these  two  points  the  credits  are  graded  pro- 
portionately. For  loss  ratio  equal  to  65  per  cent  no  debit 
will  be  imposed.  For  loss  ratio  equal  to  100  per  cent 
maximum  debit  will  be  imposed.  Between  these  points 
the  debits  are  graded  proportionately. 

Formulae  are  provided  for  determining  the  percent- 
age of  debit  or  credit    applicable  to  a  risk,  as  follows : 

/  LR\ 

I  Unity  — I   X   MC  =  percentage  of  credit 

\  40   / 

LR  —  65 

-   X   MD  =  percentage  of  debit 
100  —  65 

LR  =  Loss  ratio 
MC  =  Maximum  credit 
MD  =  Maximum  debit 

8  Pp.  256-257. 


MERIT  RATING  259 

Thus  a  risk  producing  an  earned  premium  of  one 
thousand  dollars  with  a  loss  ratio  of  thirty-five  per 
cent  would  be  entitled  to  five-sixths  of  one  per  cent 
credit,  while  the  same  risk  with  a  loss  ratio  of  eighty 
per  cent  would  be  debited  two  and  six-sevenths  per 
cent  of  the  manual  rate.4 

Schedule  Rated  Risks. — If  a  risk  is  subject  to  both 
schedule  rating  and  experience  rating  the  modifications 
indicated  by  the  two  methods  are  added  algebraically 
and  the  result  applied  to  the  manual  rate,  with  the  limi- 
tation that  "no  reduction  shall  exceed  forty  per  cent 
of  the  manual  rates."  Suppose,  for  example,  that  the 
application  of  the  schedule  results  in  a  charge  of 
twenty  per  cent,  while  experience  rating  indicates  a 
credit  of  ten  per  cent.  The  net  charge  is  ten  per  cent. 

Application  of  the  Plan. — The  Compensation  In- 
spection Rating  Board,  composed  of  the  State  Insur- 
ance Fund  and  stock  and  mutual  companies  writing 
compensation  insurance  in  the  state  of  New  York,  ad- 
ministers the  plan  under  the  supervision  of  the  state  in- 
surance department.  The  experience  of  each  risk  sub- 
ject to  experience  rating  is  submitted  to  the  Board, 
which  calculates  the  modification,  if  any,  to  which  it  is 
entitled.  The  modified  rate  is  then  promulgated  to  all 
members  of  the  Board  and  stands  as  the  officially  au- 
thorized rate  for  the  risk  in  question. 

Other  Plans. — Three  other  experience  rating  plans 

35  5 

4 1  —    -  X  6  2/3  —  —  (per   cent  credit) 

40  6 

80  —  65 

-  X  6  2/3  =  2  6/7  (per  cent  debit) 
100  —  65 


260  COMPENSATION  INSURANCE 

are  in  operation ;  the  "Service  Bureau  plan,"  the  "Mas- 
sachusetts plan,"  and  the  "Ohio  plan."  The  first  of 
these,  administered  by  the  National  Workmen's  Com- 
pensation Service  Bureau,  is  practically  the  same  as 
the  New  York  plan  and  was  put  into  effect  in  thirteen 
states  on  November  i,  1916.  The  Massachusetts  plan 
provides  for  a  neutral  zone  of  from  forty-five  to  sixty- 
five  per  cent,  witl}  a  charge  of  one  per  cent  for  each 
per  cent  of  excess  in  loss  ratio  over  sixty-five  per  cent, 
and  a  credit  of  two-thirds  of  one  per  cent  for  each  per 
cent  below  forty-five.  The  maximum  debit  or  credit 
allowed  is  thirty  per  cent.  Risks  with  a  payroll  ex- 
posure of  twenty-five  thousand  dollars  for  an  experi- 
ence period  of  not  over  five  years  are  subject  to  com- 
pulsory rating  under  the  plan.  The  Ohio  plan  pro- 
vides a  system  of  debits  for  all  risks,  except  contract- 
ing risks,  to  which  a  system  of  credits  is  applicable. 
"The  method  of  applying  the  experience  is  based  part- 
ly upon  the  number  of  compensatable  accidents,  partly 
on  their  cost,  partly  on  their  gravity,  and  partly  on  the 
base  rate  for  the  classification."  "The  Ohio  system 
appears  in  general  to  be  unnecessarily  complex.  .  .  . 
It  would  not  be  practicable  for  use  in  states  where 
compensation  insurance  is  written  competitively." 5 
All  of  these  plans  are  prospective. 

Proposed  Plans. — Two  proposals  for  experience 
rating  which  have  not  been  adopted  deserve  especial 
mention.  The  first  was  devised  by  Mr.  David  S. 
Beyer  of  the  Massachusetts  Employees  Insurance  As- 
sociation and  is  based  wholly  on  the  number  of  com- 

5  Woodward,   Joseph    H.,   "The  Experience    Rating   of   Work- 
men's Compensation  Risks,"  pp.  358-9. 


MERIT  RATING 

pensable  accidents  occurring  in  a  plant  during  the  ex- 
perience period.  Employers  who  have  a  record  better 
than  the  average  receive  a  credit,  while  those  whose 
plants  show  a  higher  rate  are  debited.  Mr.  Beyer  con- 
tends that  it  is  largely  a  matter  of  chance  whether  an 
accident  results  in  serious  disability  and  that  the  wages 
of  injured  men  bear  no  relation  to  relative  safety  con- 
ditions. The  cost  of  compensation  for  a  plant  is  there- 
fore not  an  accurate  index  of  morale,  and  the  fre- 
quency of  compensable  accidents  is  offered  as  a  sub- 
stitute. 

The  second  of  these  proposed  plans  was  developed 
by  the  Statistical  and  Actuarial  Committee  of  the 
Pennsylvania  Compensation  Rating  and  Inspection 
Bureau  and  is  particularly  notable  as  providing  for  a 
retrospective  plan  in  which  the  total  charges  and  cred- 
its for  the  state  are  balanced.  It  requires  the  cal- 
culation of  a  loss  ratio  for  the  entire  compensation 
business  of  the  state  for  each  year.  This  loss  ratio 
is  to  be  treated  as  a  normal  on  which  to  base  charges 
and  credits.  The  loss  ratio  of  each  individual  risk  is 
then  to  be  calculated  and  a  charge  of  one  per  cent 
levied  for  each  per  cent  that  the  individual  loss  ratio 
exceeds  the  normal.  The  charges  are  to  be  collected* 
as  a  part  of  the  adjusted  premium  for  the  experience 
period  and  are  to  be  distributed  to  employers  whose 
loss  ratios  are  below  normal,  participation  being  meas- 
ured by  amount  of  premium  and  variation  of  loss  ratio 
from  normal.  This  plan  came  before  the  Bureau  in 
December,  1916,  but  was  not  adopted. 

Summary  of  Arguments  Pro  and  Con.— As  experi- 
ence rating  is  still  a  subject  of  controversy  it  may  be 
18 


COMPENSATION  INSURANCE 

well  to  enumerate  the  arguments  for  and  against  its 
use  in  compensation  insurance.  In  its  favor: 

i.  By  offering  a  reward  for  low  loss  ratios  accident 
prevention  is  stimulated. 

2..  It  is  necessary  to  a  complete  measurement  of 
risk  as  it  is  the  only  means  of  reaching  the  intangible 
"moral  hazard." 

3.  It  is  the  only  method  for  applying  merit  rating 
to  risks  not  subject  to  schedule  rating. 

4.  The  experience  of  a  large  individual  risk  is  a 
proper  index  of  its  own  safety  conditions. 

Contra : 

i.  Experience  rating  is  a  denial  of  the  principles 
of  insurance  which  call  for  the  combination  of  a  large 
number  of  risks  in  order  to  obtain  dependable  aver- 
ages. 

2..  It  has  been  used  as  a  competitive  device  and  is 
still  open  to  competitive  abuses. 

3.  It  will  work  injustice  to  the  employee  because 
the  employer  will  suppress  notices  of  injury  and  at- 
tempt to  reduce  compensation  payments  in  order  to 
keep  his  loss  record  as  low  as  possible. 

4.  Small  risks,  which  are  excluded  from  the  oper- 
ation of  the  plan,  are  thus  discriminated  against. 

CONCLUSION 

Merit  rating  is  still  in  its  developmental  stages.  It 
lacks  the  statistical  backing  which  time  will  bring,  and 
in  the  meantime  recourse  must  be  had  to  expert  judg- 
ment. Available  figures  indicate  that  merit  rating  is 
resulting  in  a  much  smaller  net  reduction  of  the  man- 


MERIT  RATING  263 

ual  rate  than  formerly,  but  little  has  been  done  toward 
justifying  particular  charges  and  credits.  Future 
changes  may  be  expected  to  take  the  form  of  more  ac- 
curate and  specialized  charges  and  credits  based  on 
actual  experience  figures. 

REFERENCES 

HANSEN,  CARL  M.  "Development,  Application  and  Ef- 
fect of  Schedule  Rating  in  Liability  and  Compensa- 
tion Insurance,"  Proceedings  of  The  Casualty  Actu- 
arial and  Statistical  Society  of  America.  Vol.  I, 
pp.  217-226. 

WHITNEY,  A.  W.  "Notes  on  the  Theory  of  Schedule 
Rating,"  Ibid.,  Vol.  I,  pp.  250-256. 

FORBES,  CHARLES  S.  "Schedule  Rating  by  Formula," 
Ibid.,  Vol.  II,  pp.  33-38. 

GREENE,  W.  W.  "Should  the  Compensation  Premium 
Reflect  the  Experience  of  the  Individual  Risk?" 
Ibid.,  Vol.  II,  pp.  347-355- 

WOODWARD,  JOSEPH  H.  "The  Experience  Rating  of 
Workmen's  Compensation  Risks,"  Ibid.,  Vol.  II,  pp. 

356-369- 

MOWBRAY,  ALBERT  H.  "Scheduled  Experience  Rating," 
Ibid.,  Vol.  Ill,  pp.  14-25. 

BEYER,  DAVID  S.  "  'Experience'  or  'Morale'  Rating  in 
Workmen's  Compensation  Insurance,"  Economic 
World  (Apr.  15,  1916). 

RYAN,  H.  E.  "The  Experience  Rating  Plan  of  the  Ohio 
State  Insurance  Fund  for  Workmen's  Compensa- 
tion," Ibid.  (Oct.  7,  1916). 

GATY,  THEO.  E.,  Brief  on  Experience  Rating  submitted 
to  the  New  York  State  Insurance  Department.  Pub- 
lished in  Journal  of  Commerce  and  Commercial  Bul- 
letin (Feb.  21,  1916). 


264  COMPENSATION  INSURANCE 

SENIOR,  LEON  S.  "The  Effect  of  Schedule  and  Experi- 
ence Rating  on  Workmen's  Compensation  Risks  in 
New  York,"  Proceedings  of  The  Casualty  Actuarial 
and  Statistical  Society  of  America.  Vol.  I,  pp. 
227-240. 

DOWNEY,  E.  H.  "Some  Principles  of  Compensation 
Merit  Rating,"  Ibid.,  Vol.  Ill,  pp.  26-42. 

"Discussion,"  Ibid.,  Vol.  Ill,  pp.  54-75. 

WILSON,  HERBERT  M.  "Inspection  and  Schedule  Rating 
for  Coal  Mine  Insurance,"  Ibid.,  Vol.  II,  pp.  39-48. 


CHAPTER  XXI 
RESERVES 

A  sum  of  money  set  aside  by  an  insurance  organiza- 
tion for  certain  definite  purposes  is  called  a  reserve. 
Insurers  issuing  liability  or  compensation  policies  are 
required  by  law  to  maintain  an  unearned  premium  re- 
serve and  a  loss  reserve.1 

UNEARNED  PREMIUM  RESERVE 

Liability  and  compensation  policies  are  written  in 
practically  all  cases  for  a  one  year  term,  the  premium 
for  the  year  being  collected  in  advance.  The  pre- 
mium is  not  earned,  however,  until  the  policyholder 
has  been  afforded  protection  for  the  entire  year.  At 
any  given  time  the  insurer  has  earned  that  proportion 
of  the  premium  represented  by  the  ratio  of  the  time 
during  which  the  policy  has  been  in  force  to  the  total 
period  for  which  the  policy  is  written.  If  a  policy  is 
written  on  the  first  of  January  for  a  term  of  one  year, 
one-twelfth  of  the  premium  will  be  earned  on  Febru- 
ary first. 

The  unearned  portion  of  the  premium  constitutes 
the  unearned  premium  reserve  and  is  regarded  as  the 

1  Certain  insurers  are  also  required  to  keep  a  catastrophe  re- 
serve, as  explained  in  Chapter  XXII. 

265 


266 


COMPENSATION  INSURANCE 


property  of  the  policyholder,  held  in  trust  by  the  in- 
surance carrier.  Accordingly  the  law  requires  that 
unearned  premiums  shall  be  charged  as  a  liability  in 
the  annual  statement.  To  be  exact,  the  amount  of  this 
reserve  should  be  calculated  for  each  individual  policy 
to  cover  its  unexpired  term.  But  this  procedure  would 
necessitate  so  much  work  that  a  simpler  method  has 
been  adopted. 

Method  of  Calculation. — An  approximate  unearned 
premium  reserve  may  be  calculated  by  assuming  that, 
at  the  end  of  a  given  month,  policies  written  during 
that  month  will  have  been  in  force,  on  the  average, 
a  half-month;  that  policies  written  during  the  preced- 
ing month  will  have  been  in  force  one  and  one-half 
months,  and  so  on.  Under  this  plan,  on  one-year  poli- 
cies written  during  December,  the  insurer  will  have 
earned  one-twenty-fourth  of  the  premium  on  Decem- 
ber thirty-first,  three-twenty-fourths  on  January  thir- 
ty-first, and  so  on  until,  on  the  following  November 
thirtieth,  twenty-three  twenty-fourths  will  have  been 
earned.  The  corresponding  unearned  premium  re- 
serves for  each  of  these  three  dates  would  be  twenty- 
three  twenty-fourths,  twenty-one  twenty-fourths,  and 
one  twenty-fourth  of  the  gross  premium.  The  fol- 
lowing table  shows  the  reserve  for  each  month  of  the 
policy  term : 

EARNED  AND  UNEARNED  PREMIUM  AT  THE  END  OF  EACH  MONTH  DURING  THE 
TERM  OF  A  ONE-YEAR  POLICY 


Months    . 

1st 

2nd 

3rd 

4th 

5th 

6th 

7th 

8th 

pth 

ioth 

nth 

1  2th 

Earned  

V» 

»/24 

5/24 

'/24 

«/« 

»/24 

13/24 

"V24 

17/24 

l»/24 

«/M 

M/M 

Unearned  

23/24 

«/« 

19/24 

'»/« 

*/24 

!»/„ 

"/24 

«/M 

7/24 

5/24 

3/24 

>/24 

RESERVES  267 

If  the  volume  of  premiums  on  business  written  by 
the  insurer  is  constant  from  day  to  day  the  application 
of  this  method  will  give  an  accurate  unearned  pre- 
mium reserve.  If  business  is  increasing  the  reserve 
will  be  too  small,  since  the  premium  volume  of  the 
second  half  of  the  month  will  be  greater  than  that  of 
the  first  half  and  the  amount  actually  earned  will  be 
less  than  one  twenty-fourth  of  the  yearly  premium. 
Conversely,  if  business  is  decreasing  in  volume  the  un- 
earned premium  reserve  will  be  too  large.  However, 
the  calculation  of  accurate  unearned  premium  reserves 
is  not  sufficiently  important  to  warrant  the  necessary 
extra  labor,  as  substantial  accuracy  is  attained  under 
the  present  method. 

The  state  insurance  departments  accept  a  reserve 
computed  on  a  yearly  basis,  the  assumption  being  made 
that,  at  the  time  of  calculating  the  reserve,  all  policies 
written  for  a  term  of  one  year  or  less  have  been  in 
force,  on  the  average,  a  length  of  time  equal  to  one- 
half  their  term.  It  is  evident  that  reserves  calculated 
on  this  basis  approximate  accuracy  much  less  closely 
than  those  calculated  on  a  monthly  basis,  unless  pre- 
mium income  is  uniform  throughout  the  year. 

LOSS  RESERVES 

Definition  and  Purpose. — The  loss  reserve  is  "that 
sum  which,  with  incidental  accretions  from  interest, 
is  sufficient  to  mature  every  outstanding  obligation, 
known  or  unknown,  on  account  of  all  accidents  or 
other  events  which  may  lead  to  an  insurance  loss, 
which  have  happened  prior  to  the  date  as  of  which 


268  COMPENSATION  INSURANCE 

the  reserve  is  being  computed."  A  reserve  of  this 
sort  is  essential  in  liability  and  compensation  insurance 
since  the  obligation  of  satisfying  all  claims  and  of 
meeting  all  expenses  on  account  of  accidents  occurring 
during  the  policy  period  is  assumed  in  the  contract. 
Such  claims  and  expenses  may  require  disbursements 
for  many  years  after  expiration  of  the  policy  term. 
Liability  cases  may  be  appealed  several  times,  and 
compensation  laws  provide  for  benefits  continuing  for 
long  periods.  Claims  are  sometimes  made  a  consider- 
able time  after  the  occurrence  of  accidents  and  awards 
of  administrative  bodies  are  occasionally  readjusted 
on  the  presentation  of  new  evidence. 

Ability  to  meet  all  obligations,  present  and  future, 
out  of  income  legitimately  applicable  to  them  is  a  test 
of  solvency.  The  premium  payments  made  during 
a  particular  year  are  supposed  to  cover  all  losses  aris- 
ing from  accidents  occurring  during  that  year.  Hence 
an  insurance  organization  should  be  able,  after  paying 
current  losses  and  expenses,  to  set  aside  a  sufficient 
sum  out  of  the  year's  premiums  to  mature  all  outstand- 
ing obligations  arising  from  the  year's  accidents.  The 
only  other  income  which  should  be  applied  to  this 
purpose  is  interest  on  the  sum  set  aside. 

This  test  is  applied  to  insurance  carriers  by  the  in- 
surance departments  of  the  several  states  under  the 
terms  of  statutes  which  prescribe  methods  of  calcu- 
lating loss  reserves  and  which  require  the  maintenance 
of  the  prescribed  reserves  as  a  condition  of  solvency. 

Desiderata. — Adequacy  is  the  prime  essential  of  a 

2  Woodward,  Joseph  H.    "Workmen's  Compensation  Reserves," 
p.    112. 


i    I 


RESERVES  269 

loss  reserve,  accuracy  aw  important  but  secondary 
consideration.  The  efforts  of  insurance  officials  have 
been  directed  toward  the  development  of  a  method 
which  would,  without  question,  produce  reserves,  suffi- 
cient to  meet  outstanding  obligations.  A  deficit  works 
hardship  on  the  carrier,  which  must  meet  its  obliga- 
tions from  other  sources;  on  policyholders,  whose 
claims  may  not  be  met  or  who  must  contribute  exces- 
sive premiums  to  balance  insufficient  reserves;  and  on 
workmen,  who  may  be  unable  to  collect  compensation 
due  them. 

\Yhile  adequate  reserves  are  necessary,  redundant 
reserves  are  undesirable,  for,  reserves  being  drawn 
from  premiums,  an  excess  over  actual  needs  requires 
an  unjustly  high  premium  charge.  This  excess  will 
go  to  swell  the  dividends  of  stockholders  or,  in  a  mu- 
tual company,  of  a  group  of  policyholders  of  dif- 
ferent composition  from  the  group  which  contributed 
the  premiums.  By  unduly  increasing  the  charge  for 
insurance  scientific  conclusions  and  accurate  rating  are 
made  difficult.3  An  ideal  reserve  is  one  just  suffi- 
cient to  accomplish  its  purpose  of  maturing  every  out- 
standing obligation. 

Difficulties. — This  ideal  is  peculiarly  difficult  of  at- 
tainment in  the  insurance  of  employers'  liability  and 
workmen's  compensation.  Rapidly  changing  condi- 
tions vitiate  the  significance  of  accumulated  statistics 
even  where  such  statistics  have  been  kept.  Particu- 
larly, the  change  from  employers'  liability  to  work- 

3  An  insurer  with  a  large  surplus  may  continue  to  charge  low 
rates  by  taking  a  part  of  its  reserve  funds  from  surplus.  This 
places  the  smaller  and  younger  companies  at  a  disadvantage. 


270  COMPENSATION  INSURANCE 

men's  compensation  has  brought  about  new  conditions 
to  which  the  older  statistics  are  not  applicable,  though 
reserves  for  these  two  forms  of  business  were  not  sep- 
arated in  statements  to  insurance  departments  until 
January  i,  1914.  Even  now  reserves  for  all  types  of 
liability  business  are  combined  in  one  statement. 

If  statistics  relating  to  policies  on  which  practically 
all  obligations  have  matured  are  used,  they  are  of  lit- 
tle value  because  of  their  age,  while  statistics  taken 
from  experience  under  recent  policies  involve  a  large 
element  of  estimate  for  obligations  not  yet  matured, 
and  a  cumulative  error  is  introduced  in  making  these 
estimates  the  basis  of  further  estimates.  Because  of 
these  facts  accurate  reserves  cannot,  at  present,  be 
calculated;  the  best  that  can  be  done  is  to  attempt  to 
make  them  adequate  without  unreasonably  high  re- 
quirements. 

Methods  of  Calculation. — Any  method  which  may 
be  used  for  calculating  loss  reserves  must  ultimately 
be  based  on  past  experience,  even  though  changed  con- 
ditions may  require  a  large  measure  of  judgment  in 
adapting  such  experience  to  present  needs.  Four  bases 
have  been  proposed  for  the  calculation  of  loss  reserves ; 
(i)  individual  estimates,  (2)  pure  premiums,  (3)  av- 
erage cost  of  notices  of  injury,  of  claims,  and  of  suits, 
and  (4)  loss  ratios. 

i.  Individual  estimates:  Under  this  plan  there 
would  be  reserved  an  amount  for  each  policy  which 
the  circumstances  of  the  particular  case  seemed  to 
make  necessary.  It  has  the  advantage  of  permitting 
the  consideration  of  each  case  on  its  own  merits  but 
leaves  opportunity  for  errors  of  judgment  and  fur- 


RESERVES 

nishes  no  general  standard  of  adequacy  or  of  accuracy. 
It  also  imposes  a  burden  of  work  in  estimating  the 
probable  cost  of  each  separate  notice  of  injury,  claim, 
or  suit  which  makes  it  somewhat  impractical. 

2.  Pure  premiums  :    Pure  premiums,  accurately  de- 
termined, represent  the  losses  which  an  insurer  has  to 
meet.     If  it  is  known  how  much  has  been  expended 
under  a  particular  policy,  that  amount  subtracted  from 
the  pure  premium  should  give  the  reserve  for  losses 
to  be  experienced  in  the  future.     The  difficulty  with 
the  application  of  this  method  is  that  pure  premiums 
are   not   necessarily   accurate  and   that   payments   of 
losses  and  loss  expenses  may  be  excessive.     An  ade- 
quate reserve  must  be  prospective,  valued  on  the  ba- 
sis of  future  payments,  rather  than  retrospective,  val- 
ued on  the  basis  of  what  is  left  after  past  payments 
have  been  made. 

3.  Average  costs  of  notices  of  injury,  claims,  and 
suits :    This  rather  awkwardly  designated  method  has 
as  its  basis  the  average  cost  of  settlement  for  all  no- 
tices  of    injury,    claims,    and    suits.      These   average 
costs  are  determined  from  experience.    The  reserve  at 
time  of  valuation  is  found  by  multiplying  the  number 
of  notices,  claims,  and  suits  by  their  respective  aver- 
age costs.     From  the  sum  of  these  results  are  sub- 
tracted the  amounts  already  paid  in  losses  and  loss 
expenses.    The  method  is  simple  of  application  but  re- 
sults under  it  were  unsatisfactory,  as  it  gave  oppor- 
tunity for  the  suppression  of  notices  of  injury  and 
as  the  average  costs  varied  greatly  in  different  locali- 
ties, under  different  classes  of  liability  business,  and 
under  different  employers. 


COMPENSATION  INSURANCE 

4.  Loss  ratios :  Loss  ratios  fixed  by  statute,  deter- 
mined from  the  experience  of  individual  insurers,  or 
determined  from  the  combined  experience  of  all  in- 
surers may  be  used  as  a  basis  for  reserves.  Under 
this  scheme  the  loss  ratio  to  be  used  is  applied  to  the 
gross  premium  to  obtain  the  probable  amount  applica- 
ble to  losses  and  loss  expenses.  From  this  amount  pay- 
ments already  made  are  deducted  and  the  remainder 
constitutes  the  required  reserve.  The  principal  objec- 
tion to  the  plan  is  that  the  reserve  is  based  on  the 
gross  premium,  a  quantity  dependent  on  the  action  of 
the  insurer  and  not  necessarily  representative  of  the 
probability  of  loss.  This  objection  has  less  force 
where  rates  are  regulated  by  law.  Other  objections  to 
the  method  will  appear  in  the  discussion  of  the  pres- 
ent law.  Its  principal  merits  are  that  it  is  easy  of  ap- 
plication, that  it  has  given  better  practical  results  than 
the  average  cost  method,  and  that  it  is  easily  checked 
by  supervising  authorities. 

Present  Law. — The  law  which  now  governs  the  re- 
serves for  liability  and  compensation  insurance  in  New 
York,  Massachusetts,  Ohio,  Minnesota,  Washington, 
and  other  states,  was  first  enacted  in  1911  in  seven 
states  and  represented,  at  that  time,  the  consensus  of 
opinion  of  insurance  officials.4  It  provides  for  a 
combination  of  the  loss  ratio,  average  cost,  and  indi- 


4  A  reserve  law  enforced  in  several  important  states  covers 
business  written  in  other  states  as  well,  since  a  company,  to  do 
business  in  a  state,  must  value  the  reserves  for  its  entire  busi- 
ness in  accordance  with  the  requirements  of  that  state.  The  law 
to  be  described  operates  as  a  minimum  requirement  for  the  major 
part  of  the  liability  and  compensation  insurance  business. 


RESERVES  273 

vidual  estimate  methods.  The  loss  ratio,  which  is  ap- 
plied to  policies  written  curing  the  last  five  years  be- 
fore calculation  of  the  reserve,  is  that  experienced  by 
the  individual  insurer  during  the  first  five  years  of  the 
ten-year  period  immediately  preceding  calculation.  It 
may  not,  however,  be  less  than  fifty-five  per  cent.  This 
loss  ratio  is  applied  to  the  earned  premiums  of  each 
of  the  last  five  years  to  determine  the  total  probable 
losses.  From  the  result  are  subtracted  losses  and  loss 
expenses  already  paid  and  the  remainder  is  the  legal 
reserve. 

The  reserve  thus  ascertained  for  the  first  three  of 
the  last  five  years  is  subject  to  a  suit  test. 

The  suit  test  consists  in  taking  the  sum  of  the  follow- 
ing items  for  each  of  these  three  years :  the  number  of 
pending  suits  multiplied  by  $750,  the  amount  necessary 
to  extinguish  pending  death  claims  under  workmen's  com- 
pensation policies,  and  the  present  value  of  disability 
claims  pending  under  workmen's  compensation  policies, 
and  comparing  this  sum  with  the  reserve  determined  oy 
using  the  loss  ratio.  Whichever  amount  is  the  greater 
is  to  be  used  as  the  reserve.5 

The  reserve  for  the  last  two  years  is  determined  by  the 
loss  ratio  alone.6 

6  Law,  Frank  E.,  A  Review  of  Liability  and  Workmen's  Com- 
pensation Loss  Reserve  Legislation,  p.  18. 

6  In  Pennsylvania  a  loss  ratio  of  55  per  cent  is  fixed  by  statute 
for  both  liability  and  compensation  business,  while  in  California 
a  loss  ratio  of  75  per  cent  is  fixed  for  compensation  business. 
Under  rulings  of  the  state  insurance  departments  the  fixed  loss 
ratio  of  55  per  cent  is  now  used  in  other  states.  The  fixed  loss 
ratio  is  also  applied  to  all  companies  which  have  been  in  business 
less  than  ten  years. 


274  COMPENSATION  INSURANCE 

The  reserve  for  policies  written  more  than  five  years 
before  the  date  of  valuation  of  the  reserve  is  indicated 
under  a,  b,  c,  and  d  of  the  following  list  of  items,  the 
sum  of  all  of  which  constitutes  the  reserve  required  by 
law  to  be  held  by  companies  writing  liability  and  com- 
pensation insurance : 

(a)  For   all   suits   pending   under   policies    written 
more  than  ten  years  prior  to  the  date  of  making 
the    statement,    except   suits   under   workmen's 
compensation  policies,  $1,000  for  each  suit. 

(b)  For   all   suits   pending   under   policies   written 
more  than  five  years  and  less  than  ten  years 
prior  to  the  date  of  making  the  statement,  ex- 
cept  under   workmen's    compensation    policies, 
$750  for  each  suit. 

(c)  For  all  death  claims  pending  under  workmen's 
compensation   policies   written   more   than   five 
years  prior  to  the   date  of  making  the   state- 
ment, the  amount  necessary  to  extinguish  such 
death  claims. 

(d)  For  all  disability  claims  pending  under  work- 
men's compensation  policies  written  more  than 
five   years    prior   to    the    date    of    making   the 
statement,  the  present  value  of  such  claims. 

(e)  For  the  policies  written  in  the  first  three  years 
of  the  five-year  period  preceding  the  date  of 
making  the  statement,   the  reserve  determined 
for  each  year  separately  by  the  method  of  loss 
ratios  or  by  the  suit  test,  so-called,  whichever 
is  the  larger,  as  explained  above. 

(f)  For  the  policies  written  in  the  last  two  years  of 
the  five-year  period  preceding  the  date  of  mak- 
ing the  statement,  the  reserve  determined  for 


RESERVES  275 

each   year   separately   by   the   method   of   loss 
ratios,  as  explained  above.7 

Defects  of  the  Present  Law. — i.  It  is  generally 
agreed  that  the  present  method  of  calculation  produces 
inadequate  reserves.  Competition  forces  carriers  to 
maintain  reserves  at  the  minimum  prescribed  by  the 
law  and  this  has  resulted  in  a  serious  situation  among 
the  weaker  companies. 

2.  Experience  five  years  old  at  the  time  of  valuation 
of  reserves  is  a  poor  index  to  conditions  at  the  later 
date.     Changes  in  laws  and  in  other  matters  affecting 
loss  payments  are  not  felt  promptly  enough. 

3.  Liability  experience  is  no  sufficient  indication  of 
probable  experience  under  compensation  policies.    The 
two  kinds  of  business  are  fundamentally  different  and 
there  is  no  reason  for  expecting  that  their  loss  ratios 
will  be  the  same. 

4.  The   amount   of   the   reserve   for  the   last   two 
years  is  dependent  on  the  action  of  the  insurance  com- 
pany in  fixing  premium  rates  and  may  not  be  sufficient. 
This  defect  is  less  important  where  rates  are  regulated 
by  the  state. 

5.  The  amounts  provided  to  cover  costs  of  outstand- 
ing suits  and  the  loss  ratios  prescribed  have  proved 
inadequate. 

Proposed  Law. — These  defects  have  led  to  the  pro- 
posal of  a  new  law  by  the  National  Convention  of  In- 
surance Commissioners  which  will  probably  be  enacted 
in  several  states  during  the  1917  sessions  of  their  leg- 

7  Law,   Frank  E.,  op.  cit.,  p.    19.     This  method  of  calculating 
reserves  is  graphically  presented  on  p.  276. 


Suits  pending 

X  $1000 

1 

Syrs 

Suits  pending 

X$7SO 

yrs. 
3yrs. 

\ 

Loss  ratio  method 
with  suit  test 

r 

2yrs. 

t 

Loss 

ratio  method. 

Date  of  valuation 

LIABILITY  RESERVES. 


i         Amount  necessary  to  extinguish 
death  claims  +  present 
value  of  disability  claims 

I 

3yrs. 

Loss  ratio  method  with 

suit  or  claim  value  test 

yrs. 

2yrs. 

Loss   ratio  method 

\ 

i 

Date  of  valuation 
WORKMEN'S  COMPENSATION  RESERVES 


276 


RESERVES  277 

islatures.8  The  proposed  method  differs  in  principle 
from  the  older  law  in  requiring  that  reserves  be  cal- 
culated on  the  basis  of  fixed  loss  ratios  of  sixty  per 
cent  for  liability  policies,  and  of  sixty-five  per  cent  for 
compensation  policies.  However,  in  calculating  the  re- 
serve for  compensation  claims  sixty  per  cent  and  sixty- 
two  and  one-half  per  cent  will  be  used  on  December 
31,  1917,  and  December  31,  1918,  respectively,  the 
sixty-five  per  cent  ratio  going  into  effect  on  December 
31.  1919.  These  loss  ratios  are  to  be  applied  to  the 
last  three  years  preceding  the  date  of  statement,  sub- 
ject to  the  requirement  that,  for  the  first  of  these  three 
years,  the  reserve  shall  be  not  less  than  seven  hundred 
and  fifty  dollars  for  each  outstanding  liability  suit 
and  "not  less  than  the  present  value  at  four  per  centum 
interest  of  the  determined  and  the  estimated  unpaid 
compensation  claims." 

Reserves  provided  for  policies  written  in  other  pe- 
riods are  as  follows : 

For  all  liability  suits   being  defended  under  policies 
written  more  than 

(a)  Ten  years  prior  to  the  date  as  of  which  the 
statement  is  made,  one  thousand  five  hundred 
dollars  for  each  suit. 

(b)  Five  and  less  than  ten  years  prior  to  the  date 
as  of  which  the  statement  is  made,  one  thou- 
sand dollars  for  each  suit. 

(c)  Three   and   less   than   five   years   prior   to   the 
date  as  of  which  the  statement  is  made,  eight 
hundred  and  fifty  dollars  for  each  suit. 

Massachusetts  has  adopted  this  proposal  in  an  act  approved 
eb.  19,  1917. 
19 


278  COMPENSATION  INSURANCE 

For  all  compensation  claims  under  policies  written 
more  than  three  years  prior  to  the  date  as  of  which  the 
statement  is  made,  the  present  values  at  four  per  centum 
interest  of  the  determined  and  the  estimated  future  pay- 
ments. 

Other  Methods  Used. — Other  methods  are  in  use 
in  some  cases  by  state  funds  and  compensation  mu- 
tuals  which  differ  from  that  outlined  above  principally 
in  the  extent  to  which  losses  are  individually  estimated, 
or  which  employ  the  method  of  estimated  "average 
costs"  for  computing  the  reserve  on  the  later  years  of 
issue.  Such  methods  are  theoretically  sound  as  they 
proportion  the  reserve  directly  to  the  probability  of 
future  payments  of  loss.  The  chief  objection  to  them 
is  found  in  the  difficulty  of  supervision,  as  their  ac- 
curacy could  not  be  checked  by  a  state  insurance  de- 
partment without  an  examination  of  each  company's 
records.  Certain  states  still  apply  the  average  cost 
method  to  both  liability  and  compensation  business 
but  the  more  progressive  insurance  states  have  adopted 
the  method  outlined  above. 

REFERENCES 

LAW,  FRANK  E.  A  Review  of  Liability  and  Workmen's 
Compensation  Loss  Reserve  Legislation,  Fidelity 
and  Casualty  Company,  New  York  (1913). 

Reports  of  the  Committee  on  Reserves  other  than  Life, 
Proceedings  of  the  National  Convention  of  Insur- 
ance Commissioners. 

DAWSON,  M.  M.  "Workmen's  Compensation  Claim  Re- 
serves," Proceedings  of  the  Casualty  Actuarial  and 
Statistical  Society  of  America.  Vol.  I,  pp.  90-111. 


RESERVES  279 

WOODWARD,  JOSEPH  H.  "Workmen's  Compensation  Re- 
serves," Ibid.,  Vol.  I,  pp.  112-130. 

FLYNN,  B.  D.  "A  Method  Proposed  for  the  Calculation 
of  Liability  and  Workmen's  Compensation  Claim  Re- 
serves," Ibid.,  Vol.  I,  pp.  131-140. 

RUBINOW,  I.  M.  "Liability  Loss  Reserves,"  Ibid.,  Vol.  I, 
pp.  279-290. 

FONDILLER,  RICHARD.  "Office  Practice  in  the  Valuation 
of  Compensation  Losses,"  Ibid.,  Vol.  II,  427-446. 


CHAPTER  XXII 
TNSURANCE  OF  THE  CATASTROPHE  HAZARD1 

In  insurance,  as  in  other  forms  of  business  enter- 
prise, an  excess  of  disbursements  over  income  is  fatal 
to  success,  and  security  against  the  consequences  of 
events  which  abnormally  increase  disbursements  is  a 
matter  of  primary  interest  to  insurers  and  to  policy- 
holders.  The  largest  and  most  variable  item  in  the 
disbursements  of  an  insuring  organization  is  that  at- 
tributable to  "losses/'  payments  on  account  of  the  oc- 
currence of  events  against  which  insurance  has  been 
granted.  Premiums,  which  are  supposed  to  provide 
resources  to  meet  loss  payments,  are  calculated  on  the 
basis  of  the  theory  that  past  losses  furnish  an  approxi- 
mately accurate  guide  to  the  future.  Hence  an  abnor- 
mal excess  of  actual  losses  over  expected  might  bring 
about  such  an  increase  of  disbursements  as  to  lead  to 
embarrassment  or  insolvency  for  the  insurer  and  to  in- 
adequate protection  for  the  insured. 

Any  event  which  causes  a  loss  sufficiently  great  to 
embarrass  an  insuring  organization  and  to  endanger 
the  security  which  it  offers  to  policyholders  is  known 

1The  greater  part  of  this  chapter  is  a  reprint  of  an  article  by 
the  author  on  the  same  subject,  which  was  published  in  the 
Annals  of  the  American  Academy  of  Political  and  Social  Science, 
Vol.  LXX,  March,  1917. 

280 


INSURANCE  OF  CATASTROPHE  HAZARD     281 

as  a  catastrophe.  The  point  at  which  losses  resulting 
from  a  single  event  become  sufficiently  large  to  classify 
the  event  as  a  catastrophe  varies  between  insurers ;  the 
larger  the  income  account,  the  larger  the  loss  which 
can  be  experienced  without  serious  disturbance.  It 
varies  also  in  the  minds  of  insurance  officials;  the 
more  conservative  the  management,  the  lower  the 
point.  Wherever  the  point  may  be,  adequate  protec- 
tion of  the  policyholder  demands  that  the  insurer  take 
measures  to  secure  itself  against  such  catastrophe 
losses. 

Susceptibility  to  catastrophe  varies  greatly  between 
different  classes  of  risks  and  is  dependent  upon  the 
probability  of  a  single  event  causing  a  serious  loss.  A 
single  mine  accident  may  cause  deaths  and  injuries 
which  entail  abnormally  large  payments  under  a  com- 
pensation law ;  an  equivalent  accident  could  not  occur 
to  the  widely  scattered  drivers  of  a  taxicab  company. 
The  employees  of  a  factory  operated  by  steam  power 
are  subject  to  an  explosion  hazard  which  does  not  ex- 
ist in  an  electrically  operated  plant. 

Further,  the  catastrophe  hazard  bears  no  necessary 
relation  to  the  average  losses  on  a  given  class  of  risks. 
One  class  may  show  a  heavy  loss  experience  due  to  a 
large  number  of  individual  losses,  no  one  of  which 
is  unusually  serious.  In  another,  losses  may  occur 
only  occasionally,  but  each  loss  may  be  extremely 
heavy,  approaching  or  reaching  the  point  which  places 
it  in  the  catastrophe  group. 

No  one  form  of  security  against  the  catastrophe 
hazard  has  become  standardized,  each  insurer  adopt- 
ing whichever  of  the  available  agencies  seems  best  or 


282  COMPENSATION  INSURANCE 

most  expedient — its  decision  resting  on  considerations 
of  the  size  and  character  of  its  business  and  its  under- 
writing practices.  Three  general  methods  are  in  ac- 
tive use;  refusal  to  assume  risks  involving  a  catastro- 
phe hazard,  accumulation  of  reserve  funds  from  which 
extraordinary  losses  may  be  paid,  and  shifting  catas- 
trophe risks  to  other  insurers  through  reinsurance. 

Limits. — The  simplest  and  most  obvious  method  of 
dealing  with  the  catastrophe  hazard  is  to  avoid  it  al- 
together by  refusing  to  accept  liability  for  losses  be- 
yond a  certain  amount  on  a  given  risk  or  group  of 
risks.  Employer's  liability  insurance  is  written  with 
standard  limits  of  $5,000  and  $10,000;  the  $5,000 
limit  applying  to  liability  for  the  injury  of  any  one 
man,  and  the  $10,000  limit  applying  to  liability  for 
injuries  arising  out  of  any  one  accident.2 

Examples  of  this  type  of  practice  could  be  cited 
from  practically  every  form  of  insurance.  It  is  the 
individualistic  method  of  meeting  the  problem,  each 
insurer  assuming  whatever  risk  it  can  safely  carry  and 
leaving  the  remainder  to  be  placed  with  other  insurers 
or  retained  by  the  policyholder.  Its  application  forces 
large  concentrated  interests  to  seek  their  insurance 
from  several  insurers  and  increases  the  complexities 
attendant  on  a  settlement  of  loss. 

Accumulation  of  Catastrophe  Reserves. — Every  in- 
surance organization  maintains  a  surplus  from  which, 
if  necessary,  unusual  demands  may  be  met.  Even 
with  careful  attention  to  the  limitation  of  risk  there  is 

2  An  increase  in  these  limits  involves  the  payment  of  additional 
premium,  the  amount  of  which  is  partially  determined  by  the 
susceptibility  of  the  risk  to  the  catastrophe  hazard. 


INSURANCE  OF  CATASTROPHE  HAZARD     283 

a  possibility  of  unusually  heavy  losses  due  to  general 
conditions,  and  occasionally  risks  which  underwriters 
have  considered  as  "separate  and  distinct"  may  be 
shown  to  be  connected  in  an  unforeseen  manner. 
Proper  management  requires  a  fund  which  will  pro- 
vide financial  reinforcements  with  which  to  meet  such 
losses. 

Some  organizations  assume  risks  which  are  known 
to  involve  a  catastrophe  hazard  on  the  theory  that, 
while  a  catastrophe  loss  may  embarrass  them  if  it  must 
be  met  from  a  single  year's  income,  they  will  be  able 
to  meet  such  losses  successfully  if  spread  over  a  term 
of  years.  These  insurers  accumulate  a  "catastrophe 
reserve"  by  setting  aside  an  appropriate  amount.  De- 
pletion of  the  reserve  to  meet  extraordinary  losses  is 
corrected  by  new  accumulations  in  following  years. 
The  state  workmen's  compensation  funds  are  required 
by  law  to  maintain  such  reserves  which,  with  one  ex- 
ception, are  their  sole  immediate  resource  for  meeting 
catastrophe  losses.  For  example,  in  New  York  ten 
per  cent  of  the  premiums  received  by  the  fund  is  to  be 
set  aside  until  a  total  of  $100,000  is  reached,  after 
which  five  per  cent  is  to  be  set  aside  until  the  fund  is 
large  enough  to  cover  the  catastrophe  hazard. 

Reinsurance. — Reinsurance  is  the  latest  and  most 
favored  method  of  dealing  with  the  catastrophe  haz- 
ard. The  practice  of  limiting  risks  is  objectionable  to 
policyholders  who  prefer  to  place  as  much  insurance 
as  possible  with  one  company,  provided  it  offers  ample 
security;  and  also  to  insurers  who  desire  to  offer  cov- 
erage for  large  risks  and  thereby  increase  the  attrac- 
tiveness of  their  agency  contracts.  The  practice  of  re- 


284  COMPENSATION  INSURANCE 

insuring  with  other  companies  that  portion  of  a  risk 
which  involves  a  catastrophe  hazard  enables  a  single 
company  to  assume  large  "lines"  and,  at  the  same 
time,  offer  security  to  its  policyholders.  Each  rein- 
surer limits  the  risk  which  it  will  assume  in  order  that 
its  own  stability  may  not  be  threatened  and  requires 
the  original  insurer  to  retain  a  certain  part  of  the  risk 
to  promote  careful  selection. 

Reinsurances  may  be  effected  by  the  submission  of 
individual  risks  to  the  reinsurer  for  acceptance  or  by 
means  of  a  general  contract  under  the  terms  of  which 
the  reinsurer  automatically  assumes  a  stated  amount 
on  each  risk  at  the  moment  that  the  risk  is  written  by 
the  original  insurer.  Reinsurers  are  divided  into  two 
broad  classes;  independent  reinsurers,  whose  relation 
to  the  reinsured  is  purely  one  of  contract  for  indem- 
nity, and  mutual  reinsurance  organizations  of  which 
the  reinsured  are  members. 

Workmen's  Compensation. — It  is  usually  required 
by  law  that  the  amounts  payable  to  injured  employees 
under  a  workmen's  compensation  policy  shall  be  lim- 
ited only  by  the  provisions  of  the  compensation  act. 
An  insurer  can  apply  the  principle  of  limits  only  by 
refusing  to  accept  undesirable  risks.  If  a  risk  is  ac- 
cepted it  carries  with  it  the  catastrophe  hazard  incident 
to  its  classification.  Reinsurance  is,  therefore,  pe- 
culiarly necessary  in  this  branch  of  the  business  in 
which  the  reinsurer,  in  return  for  a  percentage  of  total 
premiums,  assumes  liability  for  all  losses  in  excess  of 
a  specified  amount  arising  out  of  any  one  accident. 

A  considerable  amount  of  this  business  is  handled 
by  London  Lloyds  and  by  the  larger  insurance  com- 


INSURANCE  OF  CATASTROPHE  HAZARD     285 

panics,  but  the  mutual  principle  has  been  applied  in 
at  least  two  organizations ;  the  Workmen's  Compensa- 
tion Reinsurance  Bureau,  and  the  Mutual  Corpora- 
tions' Reinsurance  Fund.  The  Bureau  is  maintained 
by  fifteen  stock  companies  which  pay  into  a  general 
fund  five  per  cent  of  premiums  received  on  account  of 
risks  in  the  state  of  New  York  and  two  and  one- 
half  per  cent  of  premiums  from  other  states.  With 
the  exception  of  losses  on  certain  prohibited  extra- 
hazardous  classifications,  the  Bureau  assumes  liability 
for  losses  due  to  a  single  accident  in  excess  of  $25,000. 
Members  participate  in  any  surplus  above  the  require- 
ments of  the  fund  and  are  liable  for  assessments  in 
case  of  a  deficit.  For  accounting  purposes  the  Bureau 
divides  its  business  into  two  groups  according  to  the 
percentage  of  premiums  paid,  each  group  being  finan- 
cially distinct.  Dividend  payments  are  subject  to  the 
requirement  that  a  fund  of  $250,000  be  accumulated 
and  maintained  for  each  group. 

The  Mutual  Fund  is  operated  on  a  somewhat  sim- 
ilar plan.  Its  membership  includes  nine  mutual  com- 
panies in  New  York  State.  Contributions  of  five  per 
cent  of  total  premiums  are  made  to  the  fund  and  each 
company  is  liable,  if  necessary,  for  an  additional  as- 
sessment of  'five  per  cent  of  premiums  collected  during 
the  year  preceding  a  catastrophe  loss.  Losses  in  ex- 
cess of  $25,000  but  not  exceeding  $100,000  are  paid 
from  the  fund.  The  risk  in  excess  of  $100,000  is 
usually  shifted  to  other  reinsurers. 

Akin  to  these  organizations  is  "The  Associated 
Companies"  a  combination  of  ten  stock  companies  ex- 
clusively»  for  the  writing  of  mining  risks,  which  in- 


286  COMPENSATION  INSURANCE 

volve  a  high  degree  of  catastrophe  hazard.  All  pre- 
miums and  losses  are  divided  among  the  companies 
equally,  the  ordinary  as  well  as  the  catastrophe  risks 
being  distributed. 

Reinsurance  extends  the  principle  of  insurance  from 
the  distribution  of  losses  of  individuals  to  the  distri- 
bution of  losses  of  insurers.  Systematic  cooperation 
of  this  sort  enables  insurance  organizations,  by  pro- 
tecting themselves,  to  offer  greater  security  to  their 
policyholders. 


APPENDICES 


APPENDIX  A 

THE  NEW  YORK  WORKMEN'S  COMPENSATION  LAW 
(With  Notes  of  the  State  Industrial  Commission) 

[Chapter  816  of  the  Laws  of  1913,  as  re'enacted  and 
amended  by  chapter  41  of  the  Laws  of  1914,  and  as 
amended  up  to  January  I,  1917,  constituting  chapter  67 
of  the  Consolidated  Laws.  The  constitutionality  of 
this  Workmen's  Compensation  Law  has  been  upheld  in 
Jensen  v.  Southern  Pacific  Co.,  215  N.  Y.  514 ;  Burns  v. 
Southern  Pacific  Co.,  215  N.  Y.  120;  and  Walker  v. 
Clyde  Steamship  Co.,  215  N.  Y.  529.  These  cases  have 
been  appealed  to  the  Supreme  Court  of  the  United 
States.  They  have  been  argued  there  and  await  deci- 
sion. An  older,  voluntary  plan  of  workmen's  compen- 
sation is  embodied  in  Labor  Law,  §§  204-212,  still  upon 
the  statute  books.  The  Workmen's  Compensation  Law 
should  be  constructed  broadly  and  liberally:  Matter  of 
Petrie,  215  N.  Y.  335;  Costello  v.  Taylor,  217  N.  Y. 
179;  Winfield  v.  N.  Y.  C.  &  H.  R.  R.  Co.,  168  App. 
Div.  351,  216  N.  Y.  284 ;  Moore  v.  Lehigh  Valley  R.  R. 
Co.,  169  App.  Div.  177;  217  N.  Y.  27;  Rheinwald  v. 
Builders'  Brick  &  Supply  Co.,  168  App.  Div.  425 ;  Mc- 
Queeney  v.  Sutphen  &  Myer,  167  App.  Qiv.  528.] 

Article    i.  Short  title,  application,  definitions  (§§  1-3). 

2.  Compensation  (§§  10-34). 

3.  Security  for  compensation  (§§  50-54). 

4.  State    workmen's    compensation    commission 

(§§  60-77). 

289 


290  COMPENSATION  INSURANCE 

5.  State  insurance  fund  (§§  90-106). 

6.  Miscellaneous  provisions  (§§  110-119). 

7.  Laws  repealed;  when  to  take  effect  (§§  130- 
130. 

ARTICLE  I 
SHORT  TITLE;  APPLICATION;  DEFINITIONS 

Section  i.  Short  title. 

2.  Application. 

3.  Definitions. 

Section  i.  SHORT  TITLE. — This  chapter  shall  be  known 
as  the  "workmen's  compensation  law." 

§  2.  APPLICATION. — Compensation  provided  for  in 
this  chapter  shall  be  payable  for  injuries  sustained  or 
death  incurred  by  employees  engaged  in  the  following 
hazardous  employments  :* 

For  the  Commission's  power  to  rearrange  the  groups  of  §  2, 
compare  §  95. 

Group  i.  The  operation,  including  construction  and  re-  * 
pair,  of  railways  operated  by  steam,  electric  or  other 
motive  power,  street  railways,  and  incline  railways,  but 
not  their  construction  when  constructed  by  any  person 
other  than  the  company  which  owns  or  operates  the  rail- 
way, including  work  of  express,  sleeping,  parlor  and  din- 
ing car  employees  on  railway  trains. 

Compare  §   114,  Interstate  commerce. 

Group  2.  Construction,  repair  and  operation  of  rail- 
ways not  included  in  group  i.  [Group  2  am'd  by  L.  1916, 
ch.  622.] 

Compare  §   114,  Interstate  commerce. 

*  Compare  the  notes  to  the  several  subdivisions  under  §  3. 


APPENDIX  A  291 

Group  3.  The  operation,  including  construction  and  re- 
pair, of  car  shops,  machine  shops,  steam  and  power 
plants,  and  other  works  for  the  purposes  of  any  such 
railway,  or  used  or  to  be  used  in  connection  with  it  when 
operated,  constructed  or  repaired  by  the  company  which 
owns  or  operates  the  railway. 

Compare  §   114,  Interstate  commerce. 

Group  4.  The  operation,  including  construction  and  re- 
pair of  car  shops,  machine  shops,  steam  and  power  plants, 
not  included  in  group  three. 

Compare  §   114,  Interstate  commerce. 

Group  5.  The  operation,  including  construction  and  re- 
pair, of  telephone  lines  and  wires  for  the  purposes  of  the 
business  of  a  telephone  company,  or  used  or  to  be  used 
in  connection  with  its  business,  when  constructed  or 
operated  by  the  company. 

Compare  §   114,  Interstate  commerce. 

Group  6.  The  operation,  including  construction  and  re- 
pair, of  telegraph  lines  and  wires  for  the  purposes  of  the 
business  of  a  telegraph  company,  or  used  or  to  be  used 
in  connection  with  its  business,  when  constructed  or  op- 
erated by  the  company. 

Compare  §   114,  Interstate  commerce. 

Group  7.  Construction  or  repair  of  telegraph  and  tele- 
phone lines  not  included  in  groups  five  and  six.  [Group 
7  am'd  by  L.  1916,  ch.  622.] 

Compare  §   114,  Interstate  commerce. 

Group  8.  The  operation,  within  or  without  the  state, 
including  repair,  of  vessels  other  than  vessels  of  other 
states  or  countries  used  in  interstate  or  foreign  commerce, 


292  COMPENSATION  INSURANCE 

when    operated    or    repaired   by    the    company;    marine 
wrecking.     [Group  8  am'd  by  L.  1916,  ch.  622.] 

Compare  §  114,  Interstate  Commerce,  and  group  10,  below, 
note  on  longshore  work. 

"Operation"  includes  loading  and  unloading ;  when  the  em- 
ployer and  owner  is  a  New  York  corporation,  the  presumption 
is  that  the  vessel  is  not  one  of  another  State  or  country:  Ed- 
wardsen  v.  Jarvis  Lighterage  Co.,  168  App.  Div.  368. 

Group  9.  Shipbuilding,  including  construction  and  re- 
pair in  a  ship-yard  or  elsewhere,  not  included  in  group 
eight. 

Group  10.  Longshore  work,  including  the  loading  or 
unloading  of  cargoes  or  parts  of  cargoes  of  grain,  coal, 
ore,  freight,  general  merchandise,  lumber  or  other  prod- 
ucts or  materials,  or  moving  or  handling  the  same  on  any 
dock,  platform  or  place,  or  in  any  warehouse  or  other 
place  of  storage. 

Compare  §  114,  Interstate  commerce. 

The  specific  enumeration  of  longshore  work  in  this  group  ex- 
cludes such  work  from  group  8:  Jensen  v.  Southern  Pacific  Co., 
215  N.  Y.  519,  520. 

Rag  picking  in  a  refuse  dump  on  the  shore  is  not  longshore 
work :  Tomassi  v.  Christensen,  171  App.  Div.  284. 

Group  ii.  Dredging,  subaqueous  or  caisson  construc- 
tion or  repair,  and  pile  driving.  [Group  n  am'd  by  L. 
1916,  ch.  622.] 

Driving  sheeting  for  a  jetty  to  protect  baths  on  a  water  front 
is  pile  driving:  Mazzarisi  v.  Ward  &  Tully,  S.  D.  R.,*  vol.  4, 
p.  443;  170  App.  Div.  868. 

Group  12.  Construction,  installation,  repair  or  opera- 
tion of  electric  light  and  electric  power  lines,  dynamos, 
or  appliances,  and  power  transmission  lines.  [Group  12 
am'd  by  L.  1916,  ch.  622.] 

*"S.  D.  R.  is  an  abbreviation  for  State  Department  Reports. 


APPENDIX  A  293 

Group  13.  Paving;  road  building,  curb  and  sidewalk 
construction  or  repair ;  sewer  and  subway  construction  or 
repair,  work  under  compressed  air,  excavation,  tunneling 
and  shaft  sinking,  well  digging,  laying  and  repair  of  un- 
derground pipes,  cables  and  wires,  not  included  in  other 
groups ;  street  cleaning,  ashes,  garbage  or  snow  removal ; 
operation  of  waterworks.  [Group  13  am'd  by  L.  1916,  ch. 
622.] 

•  Group  14.  Lumbering;  logging,  river-driving,  rafting, 
booming,  saw  mills,  bark  mills ;  shingle  mills,  lath  mills, 
lumber  yards ;  manufacture  of  veneer  and  of  excelsior ; 
manufacture  of  barrels,  kegs,  vats,  tubs,  staves,  spokes, 
or  headings.  [Group  14  am'd  by  L.  1916,  ch.  622.] 
Group  15.  Pulp  and  paper  mills. 

Group  16.  Manufacture  of  furniture,  interior  wood- 
work, organs,  pianos,  piano  actions,  canoes,  small  boats, 
coffins,  wicker  and  rattan  ware;  upholstering;  manufac- 
ture of  mattresses  or  bed  springs. 

Group  17.  Planing  mills,  sash  and  door  factories,  man- 
ufacture of  wooden  and  corrugated  paper  boxes,  cheese 
boxes,  moldings,  window  and  door  screens,  window 
shades,  carpet  sweepers,  wooden  toys,  wooden  articles 
and  wares  or  baskets;  cork  cutting.  [Group  17  am'd  by 
L.  1916,  ch.  622.] 

Group  18.  Mining;  reduction  of  ores  and  smelting; 
preparation  of  metals  or  minerals;  oil  and  gas  wells. 
[Group  18  am'd  by  L.  1916,  ch.  622.] 

Group  19.  Quarries;  sand,  shale,  clay  or  gravel  pits, 
lime  kilns ;  manufacture  of  brick,  tile,  terra-cotta,'  asbes- 
tos, fire-proofing,  or  paving  blocks,  manufacture  of  cal- 
cium carbide,  cement,  asphalt  or  paving  material ;  stone 
crushing  or  grinding.  [Group  19  am'd  by  L.  1916,  ch. 

622.] 

20 


294  COMPENSATION  INSURANCE 

Group  20.  Manufacture  of  glass,  glass  products,  glass- 
ware, porcelain  or  pottery. 

Group  21.  Iron,  steel  or  metal  foundries ;  rolling  mills  ; 
manufacture  of  castings,  forgings,  heavy  engines,  locomo- 
tives, machinery,  safes,  anchors,  cables,  rails,  shafting, 
wires,  tubing,  pipes,  sheet  metal,  boilers,  furnaces,  stoves, 
structural  steel,  iron  or  metal;  machine  shops  including 
repairs.  [Group  21  am'd  by  L.  1916,  ch.  622.] 

Group  22.  Operation  and  repair  of  stationary  engines 
and  boilers,  freight  and  passenger  elevators,  not  included 
in  other  groups ;  window  cleaning ;  heating  and  lighting. 
[Group  22  am'd  by  L.  1916,  ch.  622.] 

In  connection  wkh  the  addition  of  elevators  to  group  22  by 
L.  1916,  ch.  622,  compare  note  under  group  41. 

Group  23.  Manufacture  of  small  castings  or  forgings, 
metal  wares,  instruments,  utensils  and  articles,  hardware, 
nails,  wire  goods,  screws,  bolts,  metal  beds,  sanitary, 
water,  gas  or  electric  fixtures,  light  machines,  typewriters, 
cash  registers,  adding  machines,  carriage  mountings,  bi- 
cycles, metal  toys,  tools,  cutlery,  instruments,  photo- 
graphic cameras  and  supplies,  sheet  metal  products,  but- 
tons ;  jewelry ;  gold,  silver  and  plated  ware ;  articles  of 
bone,  ivory  and  shell.  [Group  23  am'd  by  L.  1916,  ch. 
622.] 

Group  24.  Manufacture  of  agricultural  implements, 
threshing  machines,  traction  engines,  wagons,  carriages, 
sleighs,  vehicles,  automobiles,  motor  trucks,  toy  wagons, 
sleighs  or  baby  carriages;  blacksmiths;  horse-shoers. 
[Group  24  am'd  by  L.  1916,  ch.  622.] 

Group  25.  Manufacture  of  explosives  and  dangerous 
chemicals,  corrosive  acids  or  salts,  ammonia,  gasoline,  pe- 
troleum, petroleum  products,  celluloid,  gas,  charcoal,  arti- 


APPENDIX  A  295 

ficial  ice,  gun  powder  or  ammunition ;  ice  harvesting,  ice 
storage  and  ice  distribution.  [Group  25  am'd  by  L.  1916, 
ch.  622.] 

The  addition  .of  the  ice  industry  to  this  group  by  L.  1916, 
ch.  622,  may  be  considered  in  connection  with  Aylesworth  v. 
Phoenix  Cheese  Co.,  170  App.  Div.  34. 

Group  26.  Manufacture  of  paint,  color,  varnish,  oil, 
japans,  turpentine,  printing  and  other  ink,  printers' 
rollers,  tar,  tarred,  pitched  or  asphalted  paper.  [Group 
26  am'd  by  L.  1916,  ch.  622.] 

Group  27.  Distilleries,  breweries  ;  manufacture  of  spir- 
ituous or  malt  liquors,  alcohol,  wine,  mineral  water  or 
soda  waters;  bottling.  [Group  27  am'd  by  L.  1916,  ch. 
622.] 

Group  28.  Manufacture  of  drugs  and  chemicals,  not 
specified  in  group  twenty-five,  medicines,  dyes,  extracts, 
pharmaceutical  or  toilet  preparations,  soaps,  candles,  per- 
fumes, non-corrosive  acids  or  chemical  preparations,  fer- 
tilizers, including  garbage  or  sewerage  disposal  plants ; 
shoe  blacking  or  polish.  [Group  28  am'd  by  L.  1916,  ch. 
622.] 

This  group  covers  a  general  utility  man  accidentally  killed 
while  building  a  shelf  in  a  wholesale  drug  establishment.: 
Larsen  v.  Paine  Drug  Co.,  169  App.  Div.  838;  affirmed  by  Court 
of  Appeals,  May  12,  1916. 

A  mere  refuse  dump  is  not  a  garbage  disposal  plant :  Tomassi 
v.  Christensen,  171  App.  Div.  284. 

Group  29.  Milling;  manufacture  of  cereals  or  cattle 
foods,  warehousing;  storage  of  all  kinds  and  storage  for 
hire ;  operation  of  grain  elevators.  [Group  29  am'd  by  L. 
1916,  ch.  622.] 

The  amendment  of  1916,  inserting  the  words  "of  all  kinds 
and  storage  for  hire"  appears  to  cover  private  as  well  as  public 


296  COMPENSATION  INSURANCE 

storage  and  so  to  offset  Mihm  v.  Hussey,  169  App.  Div.  742,  as 
a  precedent. 

Injury  to  an  employee  of  a  storage  company  by  the  overturning 
of  an  automobile  while  he  is  buying  fruit  for  his  employer  is  not 
compensatable :  Sickles  v.  Ballston  R.  S.  Co.,  171  App.  Div.  108. 

Group  30.  Packing  houses,  meat  markets,  abattoirs, 
manufacture  or  preparation  of  meats  or  meat  products  or 
glue,  gelatine,  paste  or  wax.  [Group  30  anid  by  L.  1916, 
ch.  622.] 

In  connection,  with  the  words  "meat  markets"  inserted  by 
L.  1916,  ch.  622,  compare  Kohler  v.  Frohmann,  167  App.  Div. 
533,  and  Newman  v.  Newman,  169  App.  Div.  745,  affirmed  by  the 
Court  of  Appeals,  June  6,  1916. 

This  group  does  not  cover  the  ordinary  preparation  of  meat 
for  cooking  purposes :  De  La  Gardelle  v.  Hampton  Co.,  167 
App.  Div.  617. 

Group  31.  Tanneries. 

Group  32.  Furriers  ;  manufacture  of  leather  goods  and 
products,  belting,  saddlery,  harness,  trunks,  valises,  boots, 
shoes,  gloves,  umbrellas,  rubber  goods,  rubber  shoes,  tub- 
ing, tires  or  hose.  [Groups  32  avn'd  by  L.  1916,  ch.  622.] 

Group  33.  Canning  or  preparation  of  fruit,  vegetables, 
fish  or  food  stuffs ;  pickle  factories  and  sugar  refineries ; 
manufacture  of  dairy  products.  [Group  33  amd  by  L. 
1916,  ch.  622.] 

This  group  does  not  cover  the  ordinary  preparation  of  food 
stuffs  for  cooking  purposes:  De  La  Gardelle  v.  Hampton  Co., 
167  App.  Div.  617. 

Group  34.  Bakeries,  including  manufacture  of  crackers 
and  biscuits,  manufacture  of  confectionery,  spices  or  con- 
diments. 

Group  35.  Manufacture  of  tobacco,  cigars,  cigarettes 
or  tobacco  products. 


APPENDIX  A  297 

Group  35.  Manufacture  of  cordage,  ropes,  fiber, 
brooms  or  brushes;  manila  or  hemp  products. 

Group  37.  Flax  mills ;  manufacture  of  textiles  or  fab- 
rics, spinning,  weaving  and  knitting  manufactories ;  manu- 
facture of  yarn,  thread,  hosiery,  cloth,  blankets,  carpets, 
canvas,  bags,  shoddy  or  felt. 

Group  38.  Manufacture  of  men's  or  women's  clothing, 
white  wear,  shirts,  collars,  corsets,  hats,  caps,  furs  or 
robes,  or  other  articles  from  textiles  or  fabrics.  [Group 
38  amd  by  L.  1916,  ch.  622.] 

Group  39.  Power  laundries;  dyeing,  cleaning  or 
bleaching. 

Group  40.  Printing,  engraving,  photo-engraving,  stere- 
otyping, electrotyping,  lithographing,  embossing;  manu- 
facture of  moving  picture  machines  and  films ;  manufac- 
ture of  stationery,  paper,  cardboard  boxes,  bags,  or 
wallpaper;  and  bookbinding.  [Group  40  amd  by  L. 
1916,  ch.  622.] 

Group  41.  The  operation,  otherwise  than  on  tracks,  on 
streets,  highways,  or  elsewhere  of  cars,  trucks,  wagons  or 
other  vehicles,  and  rollers  and  engines,  propelled  by 
steam,  gas,  gasoline,  electric,  mechanical  or  other  power 
or  drawn  by  horses  or  mules;  public  garages,  livery, 
boarding  or  sales  stables;  movers  of  all  kinds.  [Group 
41  amd  by  L.  1916,  ch.  622.] 

The  business  of  operating  vehicles  is  covered  by  this  group; 
so  that  accidents  to  the  following  employees  are  compensatable : 
a  stableman  who  does  no  driving :  Costello  v.  Taylor,  217  N.  Y. 
179;  a  driver  putting  his  horse  in  its  stall:  Smith  v.  Price,  168 
App.  Div.  421 ;  a  helper  on  an  automobile  truck  chasing  mis- 
chievous boys :  Hendricks  v.  Seeman  Bros.,  170  App.  Div.  133, 
and  a  driver  of  a  florist's  wagon  adjusting  a  customer's  window 
box:  Glatel  v.  Stump,  S.  D.  R.,  vol.  6,  p.  397.  Compare  note 
to  §  3,  subd.  i. 


298  COMPENSATION  INSURANCE 

Elevators  are  not  vehicles  within  the  purview  of  this  group : 
Wilson  v.  Dorflinger  &  Sons,  218  N.  Y.  84,  but  are  covered  by 
the  amendment  to  group  22  effected  by  L.  1916,  ch.  622. 

A  driver  who  had  put  up  his  horse  several  hours  before  and 
was  injured  while  making  deliveries  afoot  was  denied  compensa- 
tion :  Newman  v.  Newman,  169  App.  Div.  745,  affirmed  by  the 
Court  of  Appeals,  June  6,  1916;  compare  note  to  §  2,  group  30. 

Group  42.  Stone  cutting  or  dressing;  marble  works; 
manufacture  of  artificial  stone ;  steel  building  and  bridge 
construction  or  repair ;  installation  or  repair  of  elevators, 
fire  escapes,  boilers,  engines  or  heavy  machinery ;  brick- 
laying, tile-laying,  mason  work,  stone-setting,  concrete 
work,  plastering ;  and  manufacture  of  concrete  blocks ; 
structural  carpentry ;  painting,  papering,  picture  hanging, 
glazing,  decorating  or  renovating ;  sheet  metal  work ;  roof- 
ing; construction,  repair  and  demolition  of  buildings, 
bridges  and  other  structures ;  salvage  of  buildings  or  con- 
tents; plumbing,  sanitary  lighting  or  heating  installation 
or  repair;  installation  and  covering  of  pipes  or  boilers; 
junk  dealers.  [Group  42  am'd  by  L.  1916,  ch.  622.] 

A  macaroni  company  casually  employing  a  carpenter  to  put  in 
a.  partition  is  not  carrying  on  the  carpenter  business  for  profit 
and  is  not,  therefore,  liable  for  compensation  when  the  carpenter 
meets  with  an  accident:  Bargey  v.  Massaro  Macaroni  Co.,  170 
App.  Div.  103;  affirmed  by  the  Court  of  Appeals,  June  16,  1916. 

Group  43.  Any  employment  enumerated  in  the  forego- 
ing groups  and  carried  on  by  the  state  or  a  municipal 
corporation  or  other  subdivision  thereof,  notwithstanding 
the  definition  of  the  term  "employment"  in  subdivision  five 
of  section  three  of  this  chapter.  [Group  43  added  by  L. 
1916,  ch.  622.] 

Compare  §  3,  subds.  3,  5. 

Contracts  for  public  work  must  "contain  a  stipulation  that  the 
same  shall  be  void  and  of  no  effect  unless  the  person  or  cor- 
poration making  or  performing  the  same  shall  secure  compensa- 


APPENDIX  A  299 

tion  for  the  benefit  of,  and  keep  insured  during  the  life  of  said 
contract,  such  employees,  in  compliance  with  the  provisions  of 
said  law."  L.  1916,  ch.  478. 

Any  employer. not  carrying  on  one  of  the  employments 
enumerated  in  this  section,  or  who  carrying  on  one  of 
such  employments  has  in  his  employ  an  employee  not  in- 
cluded within  the  term  "employee"  as  defined  by  section 
three  of  this  chapter,  and  the  employees  of  any  such 
employer  may,  by  their  joint  election,  elect  to  become 
subject  to  the  provisions  of  this  chapter  in  the  manner 
hereinafter  provided.  Such  election  on  the  part  of  the 
employer  shall  be  made  by  posting  notices  thereof  about 
the  place  where  the  workmen  are  employed,  in  a  manner 
to  be  prescribed  by  rules  to  be  adopted  by  the  commission, 
and  by  filing  with  the  commission  a  written  statement,  in 
a  form  to  be  prescribed  by  the  commission,  to  the  effect 
that  he  accepts  the  provisions  of  this  chapter  and. that  he 
adopts  subject  to  the  approval  of  the  commission  one  of 
the  methods  of  securing  compensation  to  his  employees 
prescribed  in  section  fifty  of  this  chapter  which,  when 
so  filed  with  and  approved  by  the  commission  as  to  form 
and  method  of  securing  compensation  shall  operate  to 
subject  him  to  the  provisions  of  this  chapter  and  of  all 
acts  amendatory  thereof  for  the  period  of  one  year  from 
the  date  of  such  approval,  and  thereafter  without  further 
act  on  his  part  for  successive  terms  of  one  year  each, 
unless  such  employer  shall,  at  least  sixty  days  prior  to 
the  expiration  of  such  first  or  any  succeeding  year,  file 
with  the  commission  a  notice  in  writing  that  he  withdraws 
his  election. 

Any  employee  in  the  service  of  any  such  employer  shall 
be  deemed  to  have  accepted,  and  shall  be  subject  to  the 
provisions  of  this  chapter  and  any  act  amendatory  thereof, 
if,  at  the  time  of  the  accident  for  which  liability  is 


300  COMPENSATION  INSURANCE 

claimed,  the  employer  charged  with  such  liability  has 
not  withdrawn  his  election  and  the  employee  shall  not 
at  the  time  of  entering  into  his  contract  of  hire  have 
given  to  his  employer  notice  in  writing  that  he  elects  not 
to  be  subject  to  the  provisions  of  this  chapter  and  filed  a 
copy  thereof  with  the  commission,  or  in  the  event  that 
such  contract  for  hire  was  made  in  advance  of  the  elec- 
tion of  the  employer,  such  employee  shall  not  have  given 
to  his  employer  and  filed  with  the  commission  within 
twenty  days  after  such  election  notice  in  writing  that  he 
elects  not  to  be  subject  to  such  provisions. 

A  minor  employee  shall  be  deemed  sui  juris  for  the 
purpose  of  making  such  an  election. 

The  rights  and  remedies,  benefits  and  liabilities  of  an 
employer  or  employee  so  electing  to  become  subject  to 
the  provisions  of  this  chapter  shall  thereupon  become  the 
same  as  they  would  have  been  had  they  been  engaged 
in  one  of  the  occupations  or  employments  enumerated 
herein  and  the  words  employer  or  employee  wherever 
they  appear  in  this  chapter  shall  be  construed  as  including 
an  employer  or  employee  who  has  so  elected  to  become 
subject  to  its  provisions.  [Section  2  am'd  by  L.  1916, 
ch.  622.] 

§  3.  DEFINITIONS.  As  used  in  this  chapter,  I.  "Haz- 
ardous employment"  means  a  work  or  occupation  de- 
scribed in  section  two  of  this  chapter. 

The  courts  have  held  the  coverage  of  the  hazardous  employ- 
ments broad  enough  to  include  work  and  occupations  incidental 
to  them.  See  note  to  §  2,  group  41,  for  illustrative  cases.  See 
also  Larsen  v.  Paine  Drug  Co.,  169  App.  Div.  138;  affirmed  by 
the  Court  of  Appeals,  May  12,  1916;  McQueeney  v.  Sutphen  & 
Myer,  167  App.  Div.  528 ;  Kohler  v.  Frohmann,  167  App.  Div.  533. 
Such  incidentalness  has  been  declared  not  evident  in  Newman  v. 
Newman,  169  App.  Div.  745,  and  Gleisner  v.  Gross  &  Herbener, 
170  Apn.  Div.  37.  Compare  also  Aylesworth  v.  Phoenix  Cheese 


APPENDIX  A  301 

Co.,  170  App.  Div.  34,  and  Sickles  v.  Ballston  R.  S.  Co.,  171  App. 
Div.  108.  The  Gleisner  case  draws  the  distinction  between  inci- 
dentalness  and  non-incidentalness.  This  incidental  coverage  has 
been  broadened  further  by  the  amendment  of  L.  1916,  ch.  622, 
inserting  the  phrase  "principal  business"  in  §  3,  subd.  4,  below. 

2.  "Commission"  means  the  state  industrial  commis- 
sion, as  constituted  by  this  chapter.     [Subd.  2  amd  by  L. 
1916,  ch.  622.] 

3.  "Employer,"  except  when  otherwise  expressly  stated, 
means  a  person,  partnership,  association,  corporation,  and 
the  legal  representatives  of  a  deceased  employer,  or  the 
receiver  or  trustee  of  a  person,  partnership,  association 
or  corporation,  employing  workmen  in  hazardous  employ- 
ments including  the  state  and  a  municipal  corporation  or 
other  political  subdivision  thereof.     [Subd.  3  amd  by  L. 
1914,  ch.  316.] 

Compare  §  2,  group  43,  §  3,  subds.  4,  5 ;  §  54,  subd.  6. 

A  number  of  accidents  have  involved  a  doubt  as  to  which  of 
two  employers  ought  to  pay  the  compensation.  In  the  leading 
case  of  Dale  v.  Saunders  Bros.,  171  App.  Div.  528;  218  N.  Y.  59, 
the  Appellate  Division  held  that  the  fact  that  the  special  em- 
ployer might  be  liable  for  compensation  did  not  absolve  the 
general  employer  and  the  Court  of  Appeals  held  that  the  ques- 
tion whose  employee  the  injured  person  was  belonged  under 
§  20  solely  to  the  Commission  as  a  matter  of  fact,  the  courts  not 
having  jurisdiction.  For  other  cases  consult  S.  D.  R.,  vol.  2,  pp. 
475,  480;  vol.  4,  p.  337;  vol.  6,  pp.  310,  386;  no.  37,  p.  102. 

4.  ''Employee"  means  a  person  engaged  in  one  of  the 
occupations  enumerated  in  section  two  or  who  is  in  the 
service  of  an  employer  whose  principal  business  is  that 
of  carrying  on  or  conducting  a  hazardous  employment 
upon  the  premises  or  at  the  plant,  or  in  the  course  of 
his  employment  away  from  the  plant  of  his  employer ;  and 
shall   not  include   farm   laborers   or   domestic   servants. 
[Subd.  4  am'd  by  L.  1916,  ch.  622.] 


302  COMPENSATION  INSURANCE 

The  word  "engaged"  has  been  interpreted  in  the  case  of  an 
employee  injured  immediately  after  quitting  work:  De  Voe 
v.  N.  Y.  State  Railways,  169  App.  Div.  472,  affirmed  by  the  Court 
of  Appeals,  June  6,  1916.  Commission  rulings  in  similar  cases 
of  coming  to  or  leaving  work  may  be  consulted  in  S.  D.  R., 
vol.  i,  pp.  424,  429;  vol.  5,  p.  438;  vol.  6,  pp.  308,  333,  403. 

For  distinction  between  an  independent  contractor  and  an  em- 
ployee see  Rheinwald  v.  Builders'  Brick  &  Supply  Co.,  S.  D.  R., 
vol.  i,  p.  417;  168  App.  Div.  425;  and  Powley  v.  Vivian  &  Co., 
S.  D.  R.,  vol.  3,  p.  366,  169;  App.  Div.  170.  The  Commission  has 
made  a  new  ruling  in  the  Rheinwald  case,  S.  D.  R.,  no.  40, 
p.  67,  Feb.  16,  1916,  from  which  appeal  has  been  taken  to  the 
courts. 

An  accident  to  an  employee  occurring  without  the  State  is 
compensatable :  Post  v.  Burger  &  Gohlke,  216  N."  Y.  544;  Spratt 
v.  Sweeney  &  Gray  Co.,  168  App.  Div.  403 ;  affirmed,  216  N.  Y. 
763;  but  compare  Garner  v.  Horseheads  Construction  Co.,  171 
App.  Div.  66,  where  the  injured  employee's  contract  of  em- 
ployment related  solely  to  work  to  be  performed  outside  the 
State,  and  Lloyd  v.  Power  Specialty  Co.,  S.  D.  R.,  no.  38,  p.  78, 
where  the  injured  employee  neither  resided  in,  nor  was  injured 
in  New  York  State,  though  his  contract  of  employment  had  been 
made  there. 

An  injured  employee  may  have  compensation,  though  he  has 
made  false  statements  in  obtaining  his  employment :  Kenny  v. 
Union  Railway  Co.,  166  App.  Div.  497 ;  and  though  he  is  also  an 
officer  or  stockholder,  or  both,  of  his  employer  company ;  Cantor 
v.  Rubin  Musicant  Co.,  S.  D.  R.,  vol.  3,  p.  392;  Kennedy  v. 
Kennedy  Manufacturing  &  Engineering  Co.,  S.  D.  R.,  no.  37, 
p.  107.  Compare  Beckmann  v.  Oelerich,  argued  in  App.  Div. 
May  3,  1916.  The  amendment  by  L.  1916,  ch.  622,  adding  §  54, 
subd.  6,  below,  is  in  line  with  the  opinions  cited  in  this  second 
instance. 

5.  "Employment"  includes  employment  only  in  a  trade, 
business  or  occupation  carried  on  by  the  employer  for 
pecuniary  gain,  except  where  the  employer  and  his  em- 
ployees have  by  their  joint  election  elected  to  become  sub- 
ject to  the  provisions  of  this  chapter  as  provided  in  sec- 
tion two.  [Subd.  5  arn'd  by  L.  1916,  ch.  622.] 


APPENDIX  A  303 

Another  exception  added  by  L.  1916,  ch.  622,  as  new  group  43 
of  §  2,  extends  the  right  of  compensation  to  state  and  municipal 
employees  in  hazardous  employments  not  conducted  for  pecuniary 
gain. 

In  Mihm  v.  Hussey,  169  App.  Div.  742,  the  case  of  a  whole- 
sale merchant  storing  his  own  goods,  the  court  held  that  storage 
other  than  for  hire  was  not  carried  on  for  pecuniary  gain.  The 
effect  of  this  decision  as  a  precedent  appears  to  be  met  by  the 
amendment  of  1916  to  §  2,  group  29,  which  see. 

A  macaroni  company  casually  employing  a  carpenter  to  put  in 
a  partition  is  not  carrying  on  the  carpentry  business  for  profit 
and,  therefore,  an  accident  to  the  carpenter  is  not  compensatable : 
Bargey  v.  Massaro  Macaroni  Co.,  170  App.  Div.  103 ;  affirmed  by 
the  Court  of  Appeals,  June  16,  1916. 

6.  "Compensation"  means  the  money  allowance  payable 
to  an  employee  or  to  his  dependents  as  provided  for  in 
this    chapter,    and    includes    funeral    benefits    provided 
therein. 

7.  "Injury"   and   "personal   injury"   mean   only   acci- 
dental injuries  arising  out  of  and  in  the  course  of  employ- 
ment and  such  disease  or  infection  as  may  naturally  and 
unavoidably  result  therefrom. 

On  the  ground  that  they  arose  out  of  and  in  the  course  of 
employment  the  courts  have  held  the  following  injuries  c"om- 
pensatable:  injury  while  seeking  shelter  from  storm:  Moore 
v.  Lehigh  Valley  R.  R.  Co.,  169  App.  Div.  177;  injury  from 
contact  with  poison  ivy :  Plass  v.  Central  New  England  Ry. 
Co.,  169  App.  Div.  826;  injury  by  the  employee's  own  motor 
cycle  used  by  him  for  going  to  and  from  his  employer's  jobs: 
Kingsley  v.  Donovan,  169  App.  Div.  828;  injury  due  to  assault 
connected  with  dispute  about  employment,  methods  of  work,  etc. : 
Yume  v.  Knickerbocker  Portland  Cement  Co.,  S.  D.  R.,  vol.  3, 
P-  353;  169  App.  Div.  905;  216  N.  Y.  653;  Harnett  v.  Steen 
Building  Co.,  169  App.  Div.  905 ;  216  N.  Y.  101 ;  Heitz  v.  Ruppert 
Brewery  Co.,  Court  of  Appeals,  May  2,  1916;  James  v.  Witherbee- 
Sherman  &  Co.,  S.  D.  R.,  vol.  2,  p.  483;  injury  while  going  to 
rescue  of  another  workman:  Waters  v.  Taylor  Co.,  Court  of 
Appeals,  May  12,  1916;  Martucci  v.  Hills  Bros.  Co.,  171  App. 


304  COMPENSATION  INSURANCE 

Div.  370.  Injuries  due  to  sportive  acts  or  horseplay  between 
employees  are  not  compensatable :  De  Filippis  v.  Falkenburg, 
170  App.  Div.  153.  The  Court  of  Appeals,  June  16,  1916,  reversed 
an  order  of  the  Appellate  Division  and  dismissed  a  compensation 
claim  for  injury  due  to  taking  poison  by  mistake  for  medicine: 
O'Neil  v.  Carley  Heater  Co.,  S.  D.  R.,  vol.  6,  p.  314. 

The  subtle  connections  of  accidental  injury  with  ensuing  infec- 
tion or  disease  would  seem  to  offer  a  wide  and  varied  field  for 
controversy  as  to  facts.  Compare  note  on  evidence  under  §  68. 
The  Commission  has  awarded  compensation  for  disability  of  a 
hoist  runner  who  jumped  into  a  river  to  escape  being  struck  by  a 
broken  timber  and  thereby  contracted  a  cold  that  developed  into 
pulmonary  tuberculosis,  S.  D.  R.,  vol.  5,  p.  381  (Rist  v.  Larkin 
&  Sangster,  affirmed,  171  App.  Div.  71)  ;  for  deaths  from  delirium 
tremens,  169  App.  Div.  450;  S.  D.  R.,  vol.  5,  p.  380;  vol.  6,  p.  401, 
n°-  39)  P-  62 ;  for  death  of  an  electrotype  finisher  from  angina 
pectoris  due  to  exhaustion  from  prolonged  over-exertion,  S.  D. 
R.,  vol.  3,  p.  395 ;  for  insanity  of  an  elevated  railway  motorman 
caused  by  the  shock  of  a  collision,  S.  D.  R.,  vol.  5,  pp.  371,  374; 
for  infection  in  the  finger  of  a  cloak  model  due  to  the  prick  of 
a  pin  while  she  was  trying  on  an  unfinished  garment,  S.  D.  R., 
vol.  5,  p.  385 ;  for  infection  in  a  laceration  on  the  head  of  a  sub- 
way worker  caused  by  the  falling  of  a  beam,  S.  D.  R.,  vol.  6, 
P-  3945  for  anthrax  contracted  by  a  trimmer  of  skins  in  a  tannery 
through  an  accidental  abrasion  in  his  cheek,  S.  D.  R.,  vol.  6, 
p.  388;  for  death  of  a  street  railway  process  server  from 
gangrenous  diabetes  resultant  from  a  fellow  passenger's  treading 
upon  his  toes  while  he  was  returning  to  the  office  on  one  of  his 
employer's  cars,  S.  D.  R.,  no.  37,  p.  97;  no.  39,  p.  59;  and  for 
death  of  a  driver  from  tetanus  as  the  result  of  a  wound  in  the 
foot  by  a  rusty  nail,  S.  D.  R.,  vol.  6,  p.  355 ;  no.  38,  p.  76. 

The  Commission,  on  ground  of  the  lack  of  evidence,  has 
denied  benefits  to  widows  for  the  deaths  of  their  husbands  from 
the  following  diseases:  blood  poisoning  claimed  to  have  been 
due  to  rupture  of  the  mucous  membrane  inside  of  the  nose,  per- 
mitting the  entrance  of  germs,  the  rupture  having  been  caused 
by  an  accidental  blow  from  a  container,  S.  D.  R.,  vol.  6,  p.  336; 
tubercular  trouble  claimed  to  have  been  hastened  by  the  fracture 
of  a  leg,  S.  D.  R.,  vol.  6,  p.  349;  intestinal  ulcers  claimed  to 
have  been  caused  by  crushing  of  the  body  against  a  truck,  S.  D. 
R.,  vol.  6,  p.  304;  lobar  pneumonia  claimed  to  have  been  due  to 


APPENDIX  A  305 

weakness  caused  by  the  amputation  of  a  finger,  S.  D.  R.,  vol.  6, 
p.  383;  and  a  paralytic  stroke  or  an  embolism  claimed  to  have 
resulted  from  severe  vibration  of  a  compressed  air  drill,  S:  D.  R., 
no.  37,  p.  loo. 

8.  "Death"  when  mentioned  as  a  basis  for  the  right  to 
compensation  means  only  death  resulting  from  such  in- 
jury. 

9.  "Wages"  means  the  money  rate  at  which  the  service 
rendered  is  recompensed  under  the  contract  of  hiring  in 
force  at  the  time  of  the  accident,  including  the  reason- 
able value  of  board,  rent,  housing,   lodging  or  similar 
advantage  received  from  the  employer. 

For  the  use  of  wages  as  the  basis  of  compensation,  see  §§  14, 
15,  101,  102,  113. 

10.  "State  fund"  means  the  state  insurance  fund  pro- 
vided for  in  article  five  of  this  chapter. 

11.  "Child"   shall  include  a  posthumous  child  and  a 
child  legally  adopted  prior  to  the  injury  of  the  employee; 
and  a  stepchild  dependent  upon  the  deceased.     [Subd.  n 
anid  by  L.  1916,  ch.  622.] 

12.  "Insurance  carrier"  shall  include  the  state  fund, 
stock  corporations  or  mutual  associations  with  which  em- 
ployers have  insured,   and  employers  permitted  to  pay 
compensation  directly  under  the  provisions  of  subdivision 
three  of  section  fifty. 

13.  "Manufacture,"    "construction,"    "operation"    and 
"installation"   shall   include   "repair,"   "demolition"   and 
"alteration."     [Subd.  13  added  by  L.  1916,  ch.  622.] 

ARTICLE  2 

COMPENSATION 

Section  10.  Liability  for  compensation, 
ii.  Alternative  remedy. 


306  COMPENSATION  INSURANCE 

12.  Compensation  not  allowed  for  first  two  weeks. 

13.  TreatmeHt  and  care  of  injured  employees. 

14.  Weekly  wages  basis  of  compensation. 

15.  Schedule  in  case  of  disability. 

16.  Death  benefits. 

17.  Aliens. 

18.  Notice  of  injury. 

19.  Medical  examination. 

20.  Determination  of  claims  for  compensation. 

21.  Presumptions. 

22.  Modification  of  award. 

23.  Appeals  from  the  commission. 

24.  Costs  and  fees. 

25.  Compensation,  how  payable. 

26.  Enforcement  of  payment  in  default. 

27.  Depositing  future  payments. 

28.  Limitation  of   right  to  compensation. 

29.  Subrogation  to  remedies  of  employee. 

30.  Revenues  or  benefits  from  other  sources  not  to  affect 

compensation. 

31.  Agreement  for  contribution  by  employee  void. 

32.  Waiver  agreements  void. 

33.  Assignments ;   exemptions. 

34.  Preferences. 

§  10.  LIABILITY  FOR  COMPENSATION. — Every  employer 
subject  to  the  provisions  of  this  chapter  shall  pay  or  pro- 
vide as  required  by  this  chapter  compensation  according 
to  the  schedules  of  this  article  for  the  disability  or  death 
of  his  employee  resulting  from  an  accidental  personal  in- 
jury sustained  by  the  employee  arising  out  of  and  in  the 
course  of  his  employment,  without  regard  to  fault  as  a 
cause  of  such  injury,  except  where  the  injury  is  occa- 
sioned by  the  willful  intention  of  the  injured  employee  to 
bring  about  the  injury  or  death  of  himself  or  of  another, 
or  where  the  injury  results  solely  from  the  intoxication 
of  the  injured  employee  while  on  duty.  Where  the  injury 
is  occasioned  by  the  willful  intention  of  the  injured  em- 
ployee to  bring  about  the  injury  or  death  of  himself  or  of 


APPENDIX  A  307 

another,  or  where  the  injury  results  solely  from  the  intox- 
ication of  the  injured  employee  while  on  duty,  neither  the 
injured  employee  nor  any  dependent  of  such  employee 
shall  receive  compensation  under  this  chapter. 

For  decisions  interpreting  the  phrases  "arising  out  of"  and 
"in  the  course  of"  compare  notes  to  §  3,  subd.  7. 

§  ii.  ALTERNATIVE  REMEDY. — The  liability  of  an  em- 
ployer prescribed  by  the  last  preceding  sectioji  shall  be  ex- 
clusive and  in  place  of  any  other  liability  whatsoever,  to 
such  employee,  his  personal  representatives,  husband,  par- 
ents, dependents  or  next  of  kin,  or  any  one  otherwise 
entitled  to  recover  damages,  at  common  law  or  otherwise 
on  account  of  such  injury  or  death,  except  that  if  an 
employer  fail  to  secure  the  payment  of  compensation  for 
his  injured  employees  and  their  dependents  as  provided 
in  section  fifty  of  this  chapter,  an  injured  employee,  or  his 
legal  representative  in  case  death  results  from  the  injury, 
may,  at  his  option,  elect  to  claim  compensation  under 
this  chapter,  or  to  maintain  an  action  in  the  courts  for 
damages  on  account  of  such  injury;  and  in  such  an  action 
it  shall  not  be  necessary  to  plead  or  prove  freedom  from 
contributory  negligence  nor  may  the  defendant  plead  as 
a  defense  that  the  injury  was  caused  by  the  negligence  of 
a  fellow  servant  nor  that  the  employee  assumed  the  risk 
of  his  employment,  nor  that  the  injury  was  due  to  the 
contributory  negligence  of  the  employee.  [As  am'd  by 
L.  1914,  ch.  316;  and  L.  1916,  ch.  622.] 

L.  1916,  ch.  622,  harmonizes  §  n  with  §  52  by  inserting  the 
phrase  "or  legal  representatives"  in  §  52.  Compare  Dearborn  v. 
Peugeot  Auto  Import  Co.,  170  App.  Div.  93,  which  holds  that  the 
widow  of  an  employee  need  not  qualify  as  administratrix  or 
executrix  in  order  to  make  the  election  permitted  by  §  n. 

The  amendment  of  §  n  effected  by  L.  1916,  ch.  622,  should  be 
read  in  the  light  of  Shinnick  v.  Clover  Farms  Co.,  169  App. 


308  COMPENSATION  INSURANCE 

Div.  236,  and  Shanahan  v.  Monarch  Engineering  Co.,  92  Misc. 
466.  Compare  also  §  53,  and  clause  relative  to  disfigurement, 
added  to  §  15,  subd.  3,  by  L.  1916,  ch.  622. 

For  the  General  Employers'  Liability  Law,  see  article  14  of 
the  Labor  Law.  See  also  §§29  and  53  of  the  Workmen's  Com- 
pensation Law ;  Liability  of  Railway  Companies,  Railroad  Law, 
§  64;  Damages  for  Injuries  Causing  Death,  Constitution  of 
New  York,  Art.  I,  §  18;  and  Code  of  Civil  Procedure,  §  1902; 
and  Criminal  Liability  for  Negligence,  Penal  Law,  §§  1052,  1893. 

§  12.  COMPENSATION  NOT  ALLOWED  FOR  FIRST  Two 
WEEKS. — No  compensation  shall  be  allowed  for  the  first 
fourteen  days  of  disability,  except  the  benefits  provided 
for  in  section  thirteen  of  this  chapter. 

§  13.  TREATMENT  AND  CARE  OF  INJURED  EMPLOYEES. 
-The  employer  shall  promptly  provide  for  an  injured 
employee  such  medical,  surgical  or  other  attendance  or 
treatment,  nurse  and  hospital  service,  medicines,  crutches 
and  apparatus  as  may  be  required  or  be  requested 
by  the  employee,  during  sixty  days  after  the  injury.  If 
the  employer  fail  to  provide  the  same,  the  injured  em- 
ployee may  do  so  at  the  expense  of  the  employer.  The 
employee  shall  not  be  entitled  to  recover  any  amount  ex- 
pended by  him  for  such  treatment  or  services  unless  he 
shall  have  requested  the  employer  to  furnish  the  same 
and  the  employer  shall  have  refused  or  neglected  to  do  so. 
All  fees  and  other  charges  for  such  treatment  and  serv- 
ices shall  be  subject  to  regulation  by  the  commission  as 
provided  in  section  twenty-four  of  this  chapter,  and  shall 
be  limited  to  such  charges  as  prevail  in  the  same  com- 
munity for  similar  treatment  of  injured  persons  of  a  like 
standard  of  living. 

See  also  §  24. 

In  Keigher  v.  General  Electric  Co.,  decided  in  May,  1916,  the 
Appellate  Division  held  that  the  employer  was  not  liable  for 
physician's  services  because  the  employee  had  rejected  the 
physician  selected  by  the  employer. 


APPENDIX  A  309 

In  Morey  v.  Worden,  S.  D.  R.,  vol.  2,  p.  297,  the  injured  .em- 
ployee did  not  request  treatment  within  the  sixty-day  limit,  but 
the  employer  had  notice  that  treatment  was  necessary ;  the  com- 
mission, therefore,  awarded  the  amount  expended  for  treatment. 

§  14.  WEEKLY  WAGES  BASIS  OF  COMPENSATION. — Ex- 
cept as  otherwise  provided  in  this  chapter,  the  average 
weekly  wages  of  the  injured  employee  at  the  time  of  the 
injury  shall  be  taken  as  the  basis  upon  which  to  compute 
compensation  or  death  benefits,  and  shall  be  determined 
as  follows: 

1.  If  the  injured  employee  shall  have  worked  in  the 
employment  in  which  he  was  working  at  the  time  of  the 
accident,  whether  for  the  same  employer  or  not,  during 
substantially  the  whole  of  the  year  immediately  preceding 
his  injury,  his  average  annual  earnings  shall  consist  of 
three  hundred  times  the  average  daily  wage  or  salary 
which  he  shall  have  earned  in  such  employment  during 
the  days  when  so  employed ; 

2.  If  the  injured  employee  shall  not  have  worked  in 
such  employment  during  substantially  the  whole  of  such 
year,  his  average  annual  earnings  shall  consist  of  three 
hundred  times  the  average  daily  wage  or  salary  which 
an  employee  of  the  same  class  working  substantially  the 
whole  of  such  immediately  preceding  year  in  the  same  or 
in  a  similar  employment  in  the  same  or  a  neighboring 
place  shall  have  earned  in  such  employment  during  the 
days  when  so  employed; 

3.  If  either  of  the  foregoing  methods  of  arriving  at 
the  annual  average  earnings  of  an  injured  employee  can- 
not reasonably  and  fairly  be  applied,  such  annual  earn- 
ings shall  be  such  sum  as,  having  regard  to  the  previous 
earnings  of  the  injured  employee  and  of  other  employees 
of  the  same  or  most  similar  class,  working  in  the  same  or 
most  similar  employment  in  the  same  or  neighboring  lo- 

21 


310  COMPENSATION  INSURANCE 

cality,  shall  reasonably  represent  the  annual  earning  ca- 
pacity of  the  injured  employee  in  the  employment  in 
which  he  was  working  at  the  time  of  the  accident ; 

4.  The  average  weekly  wages  of  an  employee  shall  be 
one-fifty-second  part  of  his  average  annual  earnings  ; 

5.  If  it  be  established  that  the  injured  employee  was 
a  minor  when  injured,  and  that  under  normal  conditions 
his  wages  would  be  expected  to  increase,  the  fact  may  be 
considered  in  arriving  at  his  average  weekly  wages. 

In  connection  with  subd.  5  compare  Kilberg  v.  Vitch,  171  App. 
Div.  89. 

Wages  are  defined  by  §  3,  subd.  9;  for  other  provisions  com- 
pare §§  15,  101,  102,  113. 

Custom  tends  to  fix  the  average  daily  wage :  Fredenburg  v. 
Empire  U.  Railways,  168  App.  Div.  618. 

Subdivision  5  of  section  15,  following,  establishes  maximum  and 
minimum  limits  for  the  use  of  the  average  weekly  wages  as  the 
basis  of  compensation  under  §  15,  and,  also,  according  to  the 
ruling  of  the  Commission  in  Morey  v.  VVorden,  S.  D.  R.,  vol.  2, 
p.  494,  absolutely  excludes  use  of  the  average  weekly  wages  as 
the  basis  of  compensation  for  loss  of  hand,  arm,  foot,  leg,  or  eye. 
For  loss  of  these  members,  the  wages  at  the  time  of  the  injury, 
and  not  the  average  weekly  wages,  are  the  basis. 

§  15.  SCHEDULE  IN  CASE  OF  DISABILITY. — The  follow- 
ing schedule  of  compensation  is  hereby  established : 

I.  Total  permanent  disability.  In  case  of  total  dis- 
ability adjudged  to  be  permanent,  sixty-six  and  two-thirds 
per  centum  of  the  average  weekly  wages  shall  be  paid 
to  the  employee  during  the  continuance  of  such  total  dis- 
ability. Loss  of  both  hands,  or  both  arms,  or  both  feet, 
or  both  legs,  or  both  eyes,  or  of  any  two  thereof  shall,  in 
the  absence  of  conclusive  proof  to  the  contrary,  constitute 
permanent  total  disability.  In  all  other  cases  perma- 
nent total  disability  shall  be  determined  in  accordance 
with  the  fact's. 


APPENDIX  A  311 

The  compensation  of  an  employee  who  loses  any  two  of  the 
members  named  in  this  section  by  different  accidents  occurring 
at  different  times,  c.  g.,  the  loss  of  one  hand  in  1909  and  the 
loss  of  the  other  in  1916,  is  determined  by  §  15,  subd.  6,  which 
see. 

2.  Temporary  total  disability.     In  case  of  temporary 
total  disability,  sixty-six  and  two-thirds  per  centum  of  the 
average  weekly  wages  shall  be  paid  to  the  employee  dur- 
ing the  continuance  thereof,  but  not  in  excess  of  three 
thousand  five  hundred  dollars,  except  as  otherwise  pro- 
vided in  this  chapter. 

"Except  as  otherwise  provided,"  compare  §  13. 

On  the  subject  of  malingering,  compare  Glidder  v.  Haliver, 
S.  D.  R.,  vol.  6,  p.  366. 

Concurrent  awards  for  temporary  total  disability  and 
permanent  partial  disability  are  not  within  the  intent  of  the  law : 
Fredenburg  v.  Empire  U.  Railways,  168  App.  Div.  618. 

3.  Permanent  partial  disability.     In  case  of  disability 
partial  in  character  but  permanent  in  quality  the  com- 
pensation shall  be  sixty-six  and  two-thirds  per  centum  of 
the  average  weekly  wages  and  shall  be  paid  to  the  em- 
ployee for  the  period  named  in  the  schedule  as  follows: 

Thumb.    For  the  loss  of  a  thumb,  sixty  weeks. 

First  finger.  For  the  loss  of  a  first  finger,  commonly 
called  index  finger,  forty-six  weeks. 

Second  finger.  For  the  loss  of  a  second  finger,  thirty 
weeks. 

Third  finger.  For  the  loss  of  a  third  finger,  twenty-five 
weeks. 

Fourth  finger.  For  the  loss  of  a  fourth  finger,  com- 
monly called  the  little  finger,  fifteen  weeks. 

For  loss  of  fingers,  see  also  below,  this  subdivision,  under 
"Loss  of  Use." 

Phalange  of  thumb  or  finger.  The  loss  of  the  first  pha- 


COMPENSATION  INSURANCE 

lange  of  the  thumb  or  finger  shall  be  considered  to  be  equal 
to  the  loss  of  one-half  of  such  thumb  or  finger,  and  com- 
pensation shall  be  one-half  of  the  amount  above  specified. 
The  loss  of  more  than  one  phalange  shall  be  considered 
as  the  loss  of  the  entire  thumb  or  finger ;  provided,  how- 
ever, that  in  no  case  shall  the  amount  received  for  more 
than  one  finger  exceed  the  amount  provided  in  this 
schedule  for  the  loss  of  a  hand. 

The  amputation  of  one-third  of  the  first  phalange  of  a  finger 
has  been  held  to  constitute,  in  law,  the  loss  of  the  phalange,  and, 
therefore,  the  loss  of  half  the  finger:  Matter  of  Petrie,  165 
App.  Div.  561;  215  N.  Y.  335. 

Great  toe.  For  the  loss  of  a  great  toe,  thirty-eight 
weeks. 

Other  toes.  For  the  loss  of  one  of  the  toes  other  than 
the  great  toe,  sixteen  weeks. 

Phalange  of  toe.  The  loss  of  the  first  phalange  of  any 
toe  shall  be  considered  to  be  equal  to  the  loss  of  one-half 
of  said  toe,  and  the  compensation  shall  be  one-half  of  the 
amount  specified.  The  loss  of  more  than  one  phalange 
shall  be  considered  as  the  loss  of  the  entire  toe. 

Hand.  The  loss  of  a  hand,  two  hundred  and  forty- 
four  weeks. 

Arm.  For  the  loss  of  an  arm,  three  hundred  and 
twelve  weeks. 

Foot.  For  the  loss  of  a  foot,  two  hundred  and  five 
weeks. 

Leg.  For  the  loss  of  a  leg,  two  hundred  and  eighty- 
eight  weeks. 

Eye.  For  the  loss  of  an  eye,  one  hundred  and  twenty- 
eight  weeks. 

Loss  of  use.  Permanent  loss  of  the  use  of  a  hand, 
arm,  foot,  leg,  eye,  thumb,  finger,  toe,  or  phalange,  shall 
be  considered  as  the  equivalent  of  the  loss  of  such  hand, 


APPENDIX  A  313 

arm,  foot,  leg,  eye,  thumb,  finger,  toe  or  phalange.  [Clause 
am'd  by  L.  1916,  ch.  622.] 

Loss  of  fingers  may  constitute  loss  of  the  hand:  Rockwell  v. 
Lewis,  168  App.  Div.  674 ;  and  loss  of  part  of  a  finger,  loss  of 
the  finger:  Feinman  v.  Albert  Manufacturing  Co.,  170  App. 
Div.  147. 

Amputations.  Amputation  between  the  elbow  and  the 
wrist  shall  be  considered  as  the  equivalent  of  the  loss  of  a 
hand.  Amputation  between  the  knee  and  the  ankle  shall 
be  considered  as  the  equivalent  of  the  loss  of  a  foot. 
Amputation  at  or  above  the  elbow  shall  be  considered  as 
the  loss  of  an  arm.  Amputation  at  or  above  the  knee 
shall  be  considered  as  the  loss  of  the  leg. 

The  compensation  for  the  foregoing  specific  injuries 
shall  be  in  lieu  of  all  other  compensation,  except  the  bene- 
fits provided  in  section  thirteen  of  this  chapter. 

In  case  of  an  injury  resulting  in  serious  facial  or  head 
disfigurement  the  commission  may  in  its  discretion,  make 
such  award  or  compensation  as  it  may  deem  proper  and 
equitable,  in  view  of  the  nature  of  the  disfigurement,  but 
not  to  exceed  three  thousand  five  hundred  dollars.  [Clause 
added  by  L.  1916,  ch.  622.] 

Compare  also  §  n.  The  addition  of  this  clause  by  L.  1916, 
ch.  622,  should  be  read  in  the  light  of  Shinnick  v.  Clover  Farms 
Co.,  169  App.  Div.  236. 

Other  cases.  In  all  other  cases  in  this  class  of  disabil- 
ity, the  compensation  shall  be  sixty-six  and  two-thirds  per 
centum  of  the  difference  between  his  average  weekly 
wages  and  his  wage-earning  capacity  thereafter  in  the 
same  employment  or  otherwise,  payable  during  the  contin- 
uance of  such  partial  disability,  but  subject  to  reconsid- 
eration of  the  degree  of  such  impairment  by  the  commis- 
sion on  its  own  motion  or  upon  application  of  any  party 
in  interest. 


314  COMPENSATION  INSURANCE 

4.  Temporary  partial  disability.    In  case  of  temporary 
partial  disability,  except  the  particular  cases  mentioned  in 
subdivision  three  of  this  section,   an  injured  employee 
shall  receive  sixty-six  and  two-thirds  per  centum  of  the 
difference   between  his   average  weekly   wages   and  his 
wage  earning  capacity  thereafter  in  the  same  employment 
or  otherwise  during  the  continuance  of  such  partial  dis- 
ability, but  not  to  exceed  when  combined  with  his  de- 
creased earnings  the  amount  of  wages  he  was  receiving 
prior  to  the  injury,  and  not  to  exceed  in  total  the  sum 
of  three  thousand  five  hundred  dollars,  except  as  other- 
wise provided  in  this  chapter.     [Subd.  4  am'd  by  L.  1916, 
ch.  622.] 

5.  Limitation.    The  compensation  payment  under  sub- 
divisions one,  two  and  four  and  under  subdivision  three 
except  in  case  of  the  loss  of  a  hand,  arm,  foot,  leg  or 
eye,  shall  not  exceed  fifteen  dollars  per  week  nor  be  less 
than  five  dollars  per  week ;  the  compensation  payment 
under  subdivision  three  in  case  of  the  loss  of  a  hand,  arm, 
foot,  leg  or  eye,  shall  not  exceed  twenty  dollars  per  week 
nor  be  less  than  five  dollars  a  week ;  provided,  however, 
that  if  the  employee's  wages  at  the  time  of  injury  are 
less  than  five  dollars  per  week  he  shall  receive  his  full 
weekly  wages. 

Compare  note  to  §  14. 

6.  Previous  disability.    The  fact  that  an  employee  has 
suffered    previous    disability    or    received    compensation 
therefor  shall  not  preclude  him  from  compensation  for  a 
later  injury  nor  preclude  compensation  for  death  result- 
ing therefrom ;  but  in  determining  compensation  for  the 
later  injury  or  death  his  average  weekly  wages  shall  be 
such  sum  as  will  reasonably  represent  his  earning  capacity 
at  the  time  of  the  later  injury,  provided,  however,  that 
an  employee  who  is  suffering  from  a  previous  disability 


APPENDIX  A  315 

shall  not  receive  compensation  for  a  later  injury  in  excess 
of  the  compensation  allowed  for  such  injury  when  con- 
sidered by  itself  and  not  in  conjunction  with  the  previous 
disability.  [Subd.  6  am'd  by  L.  1915,  ch.  615.] 

This  proviso,  added  by  L.  1915,  ch.  615,  obviates  the  decision 
in  Schwab  v.  Emporium  Forestry  Co.,  167  App.  Div.  614;  216 
N.  Y.  Rep.  712.  L.  1916,  ch.  622,  has  made  special  provision 
for  this  class  of  cases  by  the  addition  of  subd.  7,  'following. 

7.  Permanent  total  disability  after  permanent  partial 
disability.  If  an  employee  who  has  previously  incurred 
permanent  partial  disability  through  the  loss  of  one  hand, 
one  arm,  one  foot,  one  leg,  or  one  eye,  incurs  permanent 
total  disability  through  the  loss  of  another  member  or 
organ,  he  shall  be  paid,  in  addition  to  the  compensation 
for  permanent  partial  disability  provided  in  this  section 
and  after  the  cessation  of  the  payments  for  the  prescribed 
period  of  weeks  special  additional  compensation  for  the 
remainder  of  his  life  to  the  amount  of  sixty-six  and  two- 
thirds  per  centum  of  the  average  weekly  wage  earned  bv( 
him  at  the  time  the  total  permanent  disability  was  in- 
curred. Such  additional  compensation  shall  be  paid  out 
of  a  special  fund  created  for  such  purpose  in  the  follow- 
ing manner :  The  insurance  carrier  shall  pay  to  the  state 
treasurer  for  every  case  of  injury  causing  death  in  which 
there  are  no  persons  entitled  to  compensation  the  sum 
of  one  hundred  dollars.  The  state  treasurer  shall  be  the 
custodian  of  this  special  fund,  and  the  commission  shall 
direct  the  distribution  thereof.  [Subd.  7  added  by  L. 
1916,  ch.  622.] 

§  16.  DEATH  BENEFITS. — If  the  injury  causes  death,  the 
compensation  shall  be  known  as  a  death  benefit  and  shall 
be  payable  in  the  amount  and  to  or  for  the  benefit  of  the 
persons  following: 


316  COMPENSATION  INSURANCE 

1.  Reasonable  funeral  expenses  not  exceeding  one  hun- 
dred dollars; 

2.  If  there  be  a  surviving  wife  (or  dependent  husband) 
and  no  child  of  the  deceased  under  the  age  of  eighteen 
years,  to  such  wife   (or  dependent  husband)   thirty  per 
centum  of  the  average  wages  of  the  deceased  during  wid- 
owhood   (or  dependent  widowerhood)    with  two  years' 
compensation  in  one  sum,  upon  remarriage ;  and  if  there 
be  surviving  child  or  children  of  the  deceased  under  the 
age  of  eighteen  years,  the  additional  amount  of  ten  per 
centum  of  such  wages  for  each  such  child  until  of  the  age 
of  eighteen  years;  in  case  of  the  subsequent  death  of 
such  surviving  wife  (or  dependent  husband)  any  surviv- 
ing child  of  the  deceased  employee,  at  the  time  under 
eighteen  years  of  age,  shall  have  his  compensation  in- 
creased to  fifteen  per  centum  of  such  wages,  and  the 
same  shall  be  payable  until  he  shall  reach  the  age  of  eight- 
een years ;  provided  that  the  total  amount  payable  shall 
in  no  case  exceed  sixty-six  and  two-thirds  per  centum  of 
such  wages.     The  commission  may  in  its  discretion  re- 
quire the  appointment  of  a  guardian  for  the  purpose  of 
receiving  the  compensation  of  a  minor  child.     In  the  ab- 
sence of  such  a  requirement  by  the  commission  the  ap- 
pointment of  a  guardian  for  such  purposes  shall  not  be 
necessary.     [Subd.  2  amd  by  L.  1916,  ch.  622.] 

In  connection  with  the  amendment  of  L.  1916,  ch.  622,  to  this 
subdivision,  regulating  appointment  of  a  guardian,  compare 
Woodcock  v.  Walker,  170  App.  Div.  4. 

3.  If  there  be  surviving  child  or  children  of  the  de- 
ceased under  the  age  of  eighteen  years,  but  no  surviving 
wife  (or  dependent  husband)  then  for  the  support  of  each 
such  child  until  of  the  age  of  eighteen  years,  fifteen  per 
centum  of  the  wages  of  the  deceased,  provided  that  the 


APPENDIX  A  317 

aggregate  shall  in  no  case  exceed  sixty-six  and  two-thirds 
per  centum  of  such  wages. 

4.  If  there  be  no  surviving  wife  (or  dependent  hus- 
band) or  child  under  the  age  of  eighteen  years  or  if  the 
amount  payable  to  surviving  wife  (or  dependent  hus- 
band) and  to  children  under  the  age  of  eighteen  years 
shall  be  less  in  the  aggregate  than  sixty-six  and  two-thirds 
per  centum  of  the  average  wages  of  the  deceased,  then 
for  the  support  of  grandchildren  or  brothers  and  sisters 
under  the  age  of  eighteen  years,  if  dependent  upon  the 
deceased  at  the  time  of  the  accident,  fifteen  per  centum 
of  such  wages  for  the  support  of  each  such  person  until 
of  the  age  of  eighteen  years ;  and  for  the  support  of 
each  parent,  or  grandparent,  of  the  deceased  if  dependent 
upon  him  at  the  time  of  the  accident,  twenty-five  per 
centum  of  such  wages  during  such  dependency.  But  in 
no  case  shall  the  aggregate  amount  payable  under  this 
subdivision  exceed  the  difference  between  sixty-six  and 
two-thirds  per  centum  of  such  wages,  and  the  amount 
payable  as  hereinbefore  provided  to  surviving  wife  (or 
dependent  husband)  or  for  the  support  of  surviving  child 
or  children. 

Any  excess  of  wages  over  one  hundred  dollars  a  month 
shall  not  be  taken  into  account  in  computing  compensa- 
tion under  this  section.  All  questions  of  dependency 
shall  be  determined  as  of  the  time  of  the  accident.  [Subd. 
4  amd  by  L.  1916,  ch.  622.] 

The  insertion  by  L.  1916,  ch.  622,  of  the  words  "If  there  be  no- 
surviving  wife  (or  dependent  husband)  or  child  under  the  age 
of  eighteen  years  or"  confirms  the  decision  in  Friscia  v.  Drake 
Bros.  Co.,  167  App.  Div.  496,  which  decision  also  holds  that  par- 
ents may  be  dependent  upon  the  wages  of  minor  children.  L. 
1916,  ch.  622,  increases  the  amount  payable  to  parent  or  grand- 
parent. 

Dependents   supported  by  the   decedent   employee   voluntarily, 


318  COMPENSATION  INSURANCE 

partially  or  indirectly,  are  entitled  to  death  benefits:  Walz  v. 
Holbrook,  Cabot  &  Rollins  Corp.,  170  App.  Div.  6. 

A  ruling  of  the  State  Industrial  Commission  that  a  claimant 
is  dependent,  if  supported  by  any  evidence,  is  final  and  non- 
reviewable  by  the  courts :  Hendricks  v.  Seeman  Bros.,  170  App. 
Div.  133.  For  a  ruling  denying  a  mother's  dependency,  see 
Williams  v.  Coney  Island  Construction  Co.,  S.  D.  R.,  vol.  6,  p. 
346. 

In  computing  wages  as  the  basis  of  benefits  to  the  dependents 
of  a  deceased  minor,  allowance  may  be  made  under  §  14,  subd.  5, 
for  the  minor's  expectation  of  wage  increase :  Kilberg  v.  Vitch, 
171  App.  Div.  89. 

§  17.  ALIENS. — Compensation  under  this  chapter  to 
aliens  not  residents  (or  about  to  become  nonresidents) 
of  the  United  States  or  Canada,  shall  be  the  same  in 
amount  as  provided  for  residents,  except  that  dependents 
in  any  foreign  country  shall  be  limited  to  surviving  wife 
and  child  or  children,  or,  if  there  be  no  surviving  wife 
or  child  or  children,  to  surviving  father  or  mother,  or 
grandfather  or  grandmother,  whom  the  employee  has  sup- 
ported, either  wholly  or  in  part,  for  the  period  of  one  year 
prior  to  the  date  of  the  accident,  and  except  that  the 
commission  may,  at  its  option,  or  upon  the  application  of 
the  insurance  carrier,  shall,  commute  all  future  install- 
ments of  compensation  to  be  paid  to  such  aliens,  by  pay- 
ing or  causing  to  be  paid  to  them  one-half  of  the  corn-- 
muted amount  of  such  future  installments  of  compensa- 
tion as  determined  by  the  commission.  [As  am'd  by  L. 
1916,  ch.  622.] 

Compare  also  §  25.  For  an  account  of  the  Commission's 
practice  relative  to  lump  sum  awards,  see  monthly  Bulletin  of 
the  State  Industrial  Commission,  February,  1916,  no.  5,  pp.  2,  3. 

§  18.  NOTICE  OF  INJURY. — Notice  of  an  injury  for 
which  compensation  is  payable  under  this  chapter  shall 
be  given  to  the  commission  and  to  the  employer  within 


APPENDIX  A  319 

ten  days  after  disability,  and  also  in  case  of  the  death 
of  the  employee  resulting  from  such  injury,  within  thirty 
days  after  such  death.  Such  notice  may  be  given  by  any 
person  claiming  to  be  entitled  to  compensation,  or  by 
some  one  in  his  behalf.  The  notice  shall  be  in  writing, 
and  contain  the  name  and  address  of  the  employee  and 
state  in  ordinary  language  the  time,  place,  nature  and 
cause  of  the  injury,  and  be  signed  by  him  or  by  a  person 
on  his  behalf  or,  in  case  of  death,  by  any  one  or  more  of 
his  dependents  or  by  a  person  in  their  behalf.  It  shall  be 
given  to  the  commission  by  sending  it  by  mail,  by  regis- 
tered letter,  addressed  to  the  commission  at  its  office. 
It  shall  be  given  to  the  employer  by  delivering  it  to  him 
or  sending  it  by  mail,  by  registered  letter,  addressed  to 
the  employer  at  his  or  its  last  known  place  of  residence ; 
provided  that,  if  the  employer  be  a  partnership  then  such 
notice  may  be  so  given  to  any  one  of  the  partners,  and 
if  the  employer  be  a  corporation,  then  such  notice  may  be 
given  to  any  agent  or  officer  thereof  upon  whom  legal 
process  may  be  served,  or  any  agent  in  charge  of  the  busi- 
ness in  the  place  where  the  injury  occurred.  The  failure 
to  give  such  notice,  unless  excused  by  the  commission 
either  on  the  ground  that  notice  for  some  sufficient  rea- 
son could  not  have  been  given,  or  on  the  ground  that  the 
state  fund,  insurance  company,  or  employer,  as  the  case 
may  be,  has  not  been  prejudiced  thereby,  shall  be  a  bar  to 
any  claim  under  this  chapter. 

In  regard  to  evidence  of  accidental  injury,  §§  18,  21  and  in 
are  to  be  read  together.  Instances  of  the  Commission's  excuse 
of  the  employer  for  failure  to  give  timely  notice  are :  Rist  v. 
Larkin  &  Sangster,  S.  D.  R.,  vol.  5,  p.  381,  and  Birn  v.  Bradley 
Contracting  Co.,  S.  D.  R.,  vol.  6,  p.  319;  instances  of  its 
refusal,  to  excuse  are :  Opitz  v.  Tietze,  S.  D.  R.,  vol.  6,  p.  347, 
and  Graf  v.  Brooklyn  Rapid  Transit  Co.,  S.  D.  R.,  no.  37, 
p.  105. 


320  COMPENSATION  INSURANCE 

§  19.  MEDICAL  EXAMINATION. — An  employee  injured 
claiming  or  entitled  to  compensation  under  this  chapter 
shall,  if  requested  by  the  commission,  submit  himself 
for  medical  examination  at  a  time,  and  from  time  to  time, 
at  a  place  reasonably  convenient  for  the  employee,  and 
as  may  be  provided  by  the  rules  of  the  commission.  If 
the  employee  or  the  insurance  carrier  request  he  shall  be 
entitled  to  have  a  physician  or  physicians  of  his  own  selec- 
tion to  be  paid  by  him  present  to  participate  in  such 
examination.  If  an  employee  refuse  to  submit  himself  to 
examination,  his  right  to  prosecute  any  proceeding  under 
this  chapter  shall  be  suspended,  and  no  compensation  shall 
be  payable,  for  the  period  of  such  refusal. 

§  20.  DETERMINATION  OF  CLAIMS  FOR  COMPENSATION. 
— At  any  time  after  the  expiration  of  the  first  fourteen 
days  of  disability  on  the  part  of  an  injured  employee, 
or  at  any  time  after  his  death,  a  claim  for  compensation 
may  be  presented  to  the  employer  and  if  rejected  or  if 
within  ten  days  after  presentation,  a  report  containing 
an  agreement  for  compensation  be  not  made  and  filed  with 
the  commission  as  provided  by  this  section,  the  claim  may 
be  presented  to  the  commission.  The  commission  shall 
have  full  power  and  authority  to  determine  all  questions 
in  relation  to  the  payment  of  claims  presented  to  it  for 
compensation  under  the  provisions  of  this  chapter.  The 
commission  shall  make  or  cause  to  be  made  such  investi- 
gations as  it  deems  necessary,  and  upon  application  of 
either  party,  shall  order  a  hearing,  and  within  thirty  days 
after  a  claim  for  compensation  is  submitted  under  this 
section,  or  such  hearing  closed,  shall  make  or  deny  an 
award,  determining  such  claim  for  compensation,  and  file 
the  same  in  the  office  of  the  commission,  together  with 
a  statement  of  its  conclusions  of  fact  and  rulings  of  law. 
The  commission  may  before  making  an  award,  require 


APPENDIX  A 

the  claimant  to  appear  before  an  arbitration  committee 
appointed  by  it  and  consisting  of  one  representative  of 
employees,,  one  representative  of  employers,  and  either  a 
member  of  the  commission  or  a  person  specially  deputized 
by  the  commission  to  act  as  chairman,  before  which  the 
evidence  in  regard  to  the  claim  shall  be  adduced  and  by 
which  it  shall  be  considered  and  reported  upon.  Imme- 
diately after  such  filing  the  commission  shall  send  to  the 
parties  a  copy  of  the  decision.  Upon  a  hearing  pursuant 
to  this  section  either  party  may  present  evidence  and  be 
represented  by  counsel.  The  decision  of  the  commission 
shall  be  final  as  to  all  questions  of  fact,  and,  except  as 
provided  in  section  twenty-three,  as  to  all  questions  of 
law.  When  a  claim  is  presented  to  an  employer,  and  the 
employer  and  employee,  or  in  case  of  death,  his  principal 
dependent,  enter  into  an  agreement  for  the  payment  of 
compensation  therefor  pursuant  to  this  chapter,  a  joint 
report  of  such  claim  containing  such  agreement  shall  be 
made  to  the  commission  upon  a  form  prepared  by  it  and 
signed  by  the  employer  and  employee,  or  in  case  of  death 
his  principal  dependent.  The  commission  shall  examine 
such  report  and  approve  the  same  when  the  terms  are 
strictly  in  accordance  with  this  chapter  and  such  approval 
shall  constitute  an  award.  However,  the  commission  may 
make  an  award  in  the  manner  provided  in  this  section  in 
any  case,  and  if  the  terms  of  the  award  vary  from  the 
joint  report,  the  employer  shall  comply  with  the  award. 
In  case  of  unfair  dealing  or  of  bad  faith  on  the  part  of 
the  employer  under  this  section,  the  commission  may  im- 
pose a  penalty  of  not  more  than  ten  per  centum  of  the 
award.  [As  am'd  by  L.  1915,  ch.  167.] 

Even  when  the  evidence  is  meagre,  the  court  holds  that  it 
should  not  interfere  with  a  decision  of  the  Commission.  Powley 
v.  Vivian  &  Co.,  169  App.  Div.  177. 

Relative  to  court  review,  compare  §§  23  and  68. 


COMPENSATION  INSURANCE 

For  an  instance  of  modification  of  an  agreement  by  the  Com- 
mission, compare  Rudewicz  v.  Wendell  &  Evans  Co.,  S.  D.  R., 
vol.  6,  p.  408. 

§  2o-a.  PAYMENT  OF  MONEYS  IN  ADVANCE  OF  AWARD 
BY  COMMISSION. — Any  employer  shall  upon  the  making  of 
the  agreement  provided  for  in  section  twenty  advance  to 
any  injured  employee  or  to  the  principal  dependent  of  a 
deceased  employee,  the  payment  or  payments  provided  for 
in  the  agreement,  in  return  for  which  he  shall  receive  a 
receipt  on  a  form  supplied  by  the  commission  and  signed 
by  the  person  receiving  the  money,  which  receipt  shall 
specifically  state  in  what  capacity  the  signer  acted  while 
so  receiving  such  money ;  such  receipt  shall  be  forwarded 
to  the  commission  within  forty-eight  hours  after  date 
of  its  issuance  and  the  sum  stated  on  its  face  shall  be 
returned  to  said  employer  as  provided  in  section  twenty- 
five. 

Prior  to  the  making  of  said  agreement  or  in  the  event 
of  no  agreement,  any  employer  may  at  his  option  advance 
to  any  injured  employee  or  to  the  principal  dependent  of  a 
deceased  employee  any  sum  of  money,  in  return  for  which 
he  shall  receive  a  receipt  on  a  form  supplied  by  the  com- 
mission and  signed  by  the  person  receiving  the  money, 
which  receipt  shall  specifically  state  in  what  capacity  the 
signer  acted  while  so  receiving  such  money ;  such  receipt 
shall  be  forwarded  to  the  commission  within  forty-eight 
hours  after  date  of  its  issuance.  Should  any  agreement 
or  award  be  made  the  sum  so  stated  on  the  face  of  the 
receipt  shall  be  credited  to  the  payment  under  the  award 
or  agreement  and  shall  be  repaid  as  hereinbefore  pro- 
vided. Any  money  so  advanced  shall  be  at  the  employer's 
risk.  [Added  by  L.  1915,  ch.  168.] 

§  21.  PRESUMPTIONS. — In  any  proceeding  for  the  en- 
forcement of  a  claim  for  compensation  under  this  chapter, 


APPENDIX  A  323 

it  shall  be  presumed  in  the  absence  of  substantial  evidence 
to  the  contrary 

1.  That  the  claim  comes  within  the  provisions  of  this 
chapter ; 

2.  That  sufficient  notice  thereof  was  given ; 

3.  That  the  injury  was  not  occasioned  by  the  willful 
intention   of   the   injured   employee   to  bring  about  the 
injury  or  death  of  himself  or   of  another; 

4.  That  the  injury  did  not  result  solely  from  the  in- 
toxication of  the  injured  employee  while  on  duty. 

The  constitutionality  of  the  presumption  in  subd.  I  is  upheld  in 
McQueeney  v.  Sutphen  &  Myer,  167  App.  Div.  528. 

Defendant  must  offer  evidence  to  the  Commission ;  otherwise 
the  claim  is  presumptively  legal :  McQueeney  v.  Sutphen  &  Myer, 
167  App.  Div.  528;  Kohler  v.  Frohmann,  167  App.  Div.  533; 
Powley  v.  Vivian  &  Co.,  169  App.  Div.  177. 

The  presumptions  of  §  21  are  as  operative  and  binding  in  the 
court  upon  appeal  as  in  the  Commission :  Rheinwald  v.  Builders' 
Brick  &  Supply  Co.,  168  App.  Div.  433;  compare  also  White 
v.  N.  Y.  Central  &  H.  R.  R.  R.  Co.,  S.  D.  R.,  vol.  2,  p.  477, 
as  affirmed  by  the  courts  without  opinion,  169  App.  Div.  903 ; 
216  N.  Y.  653.  The  Commission  may  not  presume  that  an  acci- 
dent happened :  Hyland  v.  Winant,  S.  D.  R.,  vol.  6,  p.  304. 

§  22.  MODIFICATION  OF  AWARD. — Upon  its  own  motion 
or  upon  the  application  of  any  party  in  interest,  on  the 
ground  of  a  change  in  conditions,  the  commission  may 
at  any  time  review  any  award,  and,  on  such  review,  may 
make  an  award  ending,  diminishing  or  increasing  the 
compensation  previously  awarded,  subject  to  the  maxi- 
mum or  minimum  provided  in  this  chapter,  and  shall  state 
its  conclusions  of  fact  and  rulings  of  law,  and  shall  imme- 
diately send  to  the  parties  a  copy  of  the  award.  No  such 
review  shall  affect  such  award  as  regards  any  moneys 
already  paid. 

Compare  §  74. 


COMPENSATION  INSURANCE 

§  23.  APPEALS  FROM  THE  COMMISSION. — An  award  or 
decision  of  the  commission  shall  be  final  and  conclusive 
upon  all  questions  within  its  jurisdiction,  as  against  the 
state  fund  or  between  the  parties,  unless  within  thirty 
days  after  a  copy  of  such  award  or  decision  has  been  sent 
to  the  parties,  an  appeal 'be  taken  to  the  appellate  divi- 
sion of  the  supreme  court  of  the  third  department.  The 
commission  may  also,  in  its  discretion,  on  the  application 
of  either  party,  certify  to  such  appellate  division  of  the 
supreme  court,  questions  of  law  involved  in  its  decision. 
Such  appeals  and  the  questions  so  certified  shall  be  heard 
in  a  summary  manner  and  shall  have  precedence  over 
all  other  civil  cases  in  such  court.  The  commission  shall 
be  deemed  a  party  to  every  such  appeal,  and  the  attorney- 
general,  without  extra  compensation,  shall  represent  the 
commission  thereon.  An  appeal  may  also  be  taken  to 
the  court  of  appeals  in  all  cases  where  the  decision  of  the 
appellate  division  is  not  unanimous  and  by  the  consent 
of  the  appellate  division  or  a  judge  of  the  court  of  appeals 
where  the  decision  of  the  appellate  division  is  unanimous 
in  the  same  manner  and  subject  to  the  same  limitations 
not  inconsistent  herewith  as  is  now  provided  in  civil  ac- 
tions. It  shall  not  be  necessary  to  file  exceptions  to  the 
rulings  of  the  commission.  The  commission  shall  not 
be  required  to  file  a  bond  upon  an  appeal  by  it  to  the 
court  of  appeals.  Otherwise  such  appeals  shall  be  sub- 
ject to  the  law  and  practice  applicable  to  appeals  in  civil 
actions.  Upon  the  final  determination  of  such  an  appeal, 
the  commission  shall  make  an  award  or  decision  in  ac- 
cordance therewith.  [As  am'd  by  L.  1916,  ch.  622.] 

Prior  to  amendment  of  §  23  by  L.  1916,  ch.  622,  an  employer  in- 
sured in  the  state  fund  could  not  appeal  from  the  Commission  to 
the  courts :  Crockett  v.  International  Railway  Co.,  170  App.  Div. 
122.  The  amendment  of  §  23  by  L.  1916,  ch.  622,  regulating 
appeals  from  the  Appellate  Division  to  the  Court  of  Appeals  may 


APPENDIX  A  325 

be  read  in  connection  with  Harnett  v.  Steen  Co.,  216  N.  Y.  101. 
The  law  governing  appeals  in  civil  actions  is  the  Code  of  Civil 
Procedure,  §§  190,  191,  as  based  on  the  Constitution  of  New 
York,  Art.  6,  §§  i,  9.  The  amendment  relative  to  filing  of 
exceptions,  etc.,  is  in  line  with  the  decision  in  Kenny  v.  Union 
Railway  Co.,  166  App.  Div.  497.  The  right  of  appeal  is  restricted 
by  the  sentence  in  §  20,  which  declares:  "The  decision  of  the 
Commission  shall  be  final  as  to  all  questions  of  fact,  and  except 
as  provided  in  section  twenty-three,  as  to  all  questions  of  law." 
For  the  right  of  the  courts  to  review  the  evidence  in  compensa- 
tion cases,  compare  note  to  §  68. 

§  24.  COSTS  AND  FEES. — If  the  commission  or  the  court 
before  which  any  proceedings  for  compensation  or  con- 
cerning an  award  of  compensation  have  been  brought, 
under  this  chapter,  determines  that  such  proceedings  have 
not  been  so  brought  upon  reasonable  ground,  it  shall 
assess  the  whole  cost  of  the  proceeding  upon  the  party 
who  has  so  brought  them.  Claims  for  legal  services  in 
connection  with  any  claim  arising  under  this  chapter,  and 
claims  for  services  or  treatment  rendered  or  supplies  fur- 
nished pursuant  to  section  thirteen  of  this  chapter,  shall 
not  be  enforceable  unless  approved  by  the  commission. 
If  so  approved,  such  claim  or  claims  shall  become  a  lien 
upon  the  compensation  awarded,  but  shall  be  paid  there- 
from only  in  the  manner  fixed  by  the  commission. 

See  also  §  13. 

A  physician  cannot  maintain  an  action  against  an  employer 
under  an  employee's  assignment  of  compensation  for  medical 
services :  Bloom  v.  Jaffe,  94  Misc.  222. 

§  25.  COMPENSATION,  How  PAYABLE. — Compensation 
under  the  provisions  of  this  chapter  shall  be  payable  peri- 
odically by  the  employer,  in  accordance  with  the  method 
of  payment  of  the  wages  of  the  employee  at  the  time  of 
his  injury  or  death,  and  shall  be  so  provided  for  in  any 
award ;  but  the  commission  may  determine  that  any  pay- 
23 


326  COMPENSATION  INSURANCE 

ments  may  be  made  monthly  or  at  any  other  period,  as 
it  may  deem  advisable.  The  state  or  insurance  corpora- 
tion in  which  an  employer  is  insured  shall,  within  ten 
days  after  demand  by  such  employer  and  on  the  presenta- 
tion of  evidence  of  payment  of  compensation  in  accord- 
ance with  this  chapter,  reimburse  the  employer  therefor. 
An  injured  employee,  or  in  case  of  death  his  dependents 
or  personal  representative,  shall  give  receipts  for  payment 
of  compensation  to  the  employer  paying  the  same  and 
such  employer  shall  forward  receipts  therefor  promptly 
to  the  commission.  The  commission,  whenever  it  shall 
so.  deem  advisable,  may  commute  such  periodical  pay- 
ments to  one  or  more  lump  sum  payments  to  the  in- 
jured employee  or,  in  case  of  death,  his  dependents,  pro- 
vided the  same  shall  be  in  the  interest  of  justice.  [As 
am'd  by  L.  1915,  ch.  167.] 
Compare  §  17. 

§  26.  ENFORCEMENT  OF  PAYMENT  IN  DEFAULT. — If 
payment  of  compensation,  or  an  installment  thereof,  due 
under  the  terms  of  an  award,  be  not  made  by  the  em- 
ployer within  ten  days  after  the  same  is  due,  the  insurance 
carrier  shall  be  liable  therefor  and  if  not  paid  within  ten 
days  after  demand  by  the  injured  employee  or  in  case 
of  death  his  dependents  or  by  the  commission,  the  amount 
of  such  payment  shall  constitute  a  liquidated  claim  for 
damages  against  the  employer,  self-insurer  or  insurance 
corporation,  which  with  an  added  penalty  of  fifty  per 
centum  may  be  recovered  in  an  action  to  be  instituted  by 
the  commission  in  the  name  of  the  people  of  the  state. 
An  employer  who  negligently  or  intentionally  defaults 
in  payment  of  compensation  in  the  first  instance  under  this 
chapter  shall  be  liable  to  a  penalty  of  not  more  than  ten 
per  centum  of  the  amount  of  such  compensation,  notwith- 
standing the  fact  that  the  insurance  corporation  or  state 


APPENDIX  A  327 

fund  subsequently  pays  the  compensation  as  provided  in 
this  section.  If  such  default  be  made  in  the  payment  of 
an  installment  of  compensation  and  the  whole  amount  of 
such  compensation  be  not  due,  the  commission  may,  if  the 
present  value  of  such  compensation  be  computable,  de- 
clare the  whole  amount  thereof  due,  and  recover  the 
amount  thereof  with  the  added  penalties,  as  provided  by 
this  section.  Any  such  action  may  be  compromised  by 
the  commission  or  may  be  prosecuted  to  final  judgment 
as,  in  the  discretion  of  the  commission,  may  best  serve 
the  interests  of  the  persons  entitled  to  receive  the  com- 
pensation or  the  benefits.  Compensation  recovered  under 
this  section  shall  be  disbursed  by  the  commission  to  the 
persons  entitled  thereto  in  accordance  with  the  award.  A 
penalty  recovered  pursuant  to  this  section  shall  be  paid 
into  the  state  treasury,  and  be  applicable  to  the  expenses 
of  the  commission. 

In  case  of  default  by  the  employer  in  the  payment  of 
any  compensation  due  under  an  award  for  the  period  of 
thirty  days  after  payment  is  due  and  payable,  any  party 
in  interest  may  file  with  the  county  clerk  for  the  county 
in  which  the  injury  occurred,  a  certified  copy  of  a  deci- 
sion of  the  state  industrial  commission  awarding  com- 
pensation, or  ending,  diminishing  or  increasing  compensa- 
tion previously  awarded,  from  which  no  appeal  has  been 
taken  within  the  time  allowed  therefor,  and  thereupon 
judgment  must  be  entered  in  the  supreme  court  by  the 
clerk  of  such  county  in  conformity  therewith  immediately 
upon  the  filing  of  such  decision.  Such  decree  or  judg- 
ment shall  be  entered  in  the  same  manner  and  shall 
have  the  same  effect  and  all  proceedings  in  relation 
thereto  shall  thereafter  be  the  same,  as  though  said  de- 
cree or  judgment  had  been  rendered  in  a  suit  duly 
heard  and  determined  by  the  supreme  court,  except  that 


328  COMPENSATION  INSURANCE 

there  shall  be  no  appeal  therefrom.  The  court  upon  the 
filing  with  it  of  a  certified  copy  of  a  decision  of  the  state 
industrial  commission  ending,  diminishing  or  increasing 
compensation  previously  awarded,  shall  revoke  or  modify 
its  prior  decree  or  judgment  so  that  it  will  conform  to 
said  decision.  Neither  the  commission  nor  any  party  in 
interest  shall  be  required  to  pay  any  fee  to  any  public 
officer  for  filing  or  recording  any  paper  or  instrument 
executed  in  pursuance  of  this  section.  [As  am'd  by  L. 
1916,  ch.  622.] 

§  2.J.  DEPOSITING  FUTURE  PAYMENTS. — If  an  award 
under  this  chapter  requires  payment  of  compensation  by 
an  employer  or  an  insurance  corporation  in  periodical 
payments,  and  the  nature  of  the  injury  makes  it  possible 
to  compute  the  present  value  of  all  future  payments 
with  due  regard  for  life  contingencies,  the  commission 
may,  in  its  discretion,  at  any  time,  compute  and  permit 
or  require  to  be  paid  into  the  state  fund  an  amount  equal 
to  the  present  value  of  all  unpaid  compensation  for  which 
liability  exists,  together  with  such  additional  sum  as  the 
commission  may  deem  necessary  for  a  proportionate  pay- 
ment of  expenses  of  administering  the  fund  so  created, 
such  moneys  to  constitute  an  aggregate  trust  fund ;  and 
thereupon  such  employer  or  insurance  corporation  shall 
be  discharged  from  any  further  liability  under  such 
award  and  payment  of  the  same  shall  be  assumed  by  the 
trust  fund  so  created. 

The  moneys  so  paid  into  this  fund  shall  constitute  an 
aggregate  trust  fund  and  shall  be  kept  separate  and 
apart  from  all  other  moneys  of  the  state  fund,  and  shall 
not  be  liable  for  any  expenses  of  administration  of  the 
state  fund  other  than  the  expenses  involved  in  the  ad- 
ministration of  such  trust  fund.  [As  am'd  by  L.  1916,  ch. 
622.] 


APPENDIX  A  329 

§  28.  LIMITATION  OF  RIGHT  TO  COMPENSATION. — The 
right  to  claim  compensation  under  this  chapter  shall  be 
forever  barred  unless  within  one  year  after  the  injury 
or  if  death  result  therefrom,  within  one  year  after  such 
death,  a  claim  for  compensation  thereunder  shall  be  filed 
with  the  commission. 

§  29.  SUBROGATION  TO  REMEDIES  OF  EMPLOYEES. — if 
an  employee  entitled  to  compensation  under  this  chapter 
be  injured  or  killed  by  the  negligence  or  wrong  of  an- 
other not  in  the  same  employ,  such  injured  employee,  or 
in  case  of  death,  his  dependents,  shall,  before  any  suit 
or  claim  under  this  chapter,  elect  whether  to  take  com- 
pensation under  this  chapter  or  to  pursue  his  remedy 
against  such  other.  Such  election  shall  be  evidenced  in 
such  manner  as  the  commission  may  by  rule  or  regula- 
tion prescribe.  If  he  elect  to  take  compensation  under 
this  chapter,  the  cause  of  action  against  such  other  shall 
be  assigned  to  the  state  for  the  benefit  of  the  state  in- 
surance fund,  if  compensation  be  payable  therefrom,  and 
otherwise  to  the  person,  association,  corporation,  or  insur- 
ance carrier  liable  for  the  payment  of  such  compensation, 
and  if  he  elect  to  proceed  against  such  other,  the  state  in- 
surance fund,  person,  association,  corporation,  or  insur- 
ance carrier,  as  the  case  may  be,  shall  contribute  only  the 
deficiency,  if  any,  between  the  amount  of  the  recovery 
against  such  other  person  actually  collected,  and  the  com- 
pensation provided  or  estimated  by  this  chapter  for  such 
case.  Such  a  cause  of  action  assigned  to  the  state  may 
be  prosecuted  or  compromised  by  the  commission.  A 
compromise  of  any  such  cause  of  action  by  the  employee 
or  his  dependents  at  an  amount  less  than  the  compensa- 
tion provided  for  by  this  chapter  shall  be  made  only  with 
the  written  approval  of  the  commission,  if  the  deficiency 
of  compensation  would  be  payable  from  the  state  insur- 


330  COMPENSATION  INSURANCE 

ance  fund,  and  otherwise  with  the  written  approval  of  the 
person,  association,  corporation,  or  insurance  carrier  lia- 
ble to  pay  the  same.  Wherever  an  employee  is  killed  by 
the  negligence  or  wrong  of  another  not  in  the  same  em- 
ploy and  the  dependents  of  such  employee  entitled  to 
compensation  under  this  chapter  are  minors,  such  elec- 
tion to  take  compensation  and  the  assignment  of  the 
cause  of  action  against  such  other  and  such  notice  of 
election  to  pursue  a  remedy  against  such  other  shall  be 
made  by  such  minor,  or  shall  be  made  on  behalf  of  such 
minor  by  a  parent  of  such  minor,  or  by  his  or  her  duly 
appointed  guardian,  as  the  commission  may  determine 
by  rule  in  each  case.  [As  amd  by  L.  1916,  ch.  622.] 

In  Winter  v.  Doelger  Brewing  Co.,  May,  1916,  the  Supreme 
Court  sustained  an  action  of  the  employee  against  his  employer 
as  a  third  party,  though  the  employer  had  secured  compensation. 
The  building  where  the  accident,  the  collapse  of  an  elevator, 
occurred,  was  owned  by  the  employer  but  was  entirely  discon- 
nected with  his  place  of  business. 

An  employee  who  has  elected  compensation  and  received  an 
award  is  estopped  from  an  action  for  damages :  Miller  v.  New 
York  Railways  Co.,  171  App.  Div.  316. 

An  employee  may  maintain  an  action  for  negligence  without 
evidencing  his  election  under  this  section,  but  failure  so  to  do 
excludes  him  from  deficiency  compensation :  Lester  v.  Otis  Ele- 
vator Co.,  169  App.  Div.  613. 

Release  of  a  third  party  by  the  injured  employee,  with  or 
without  consideration,  does  not  debar  the  employee  from  com- 
pensation or  the  employer's  insurance  carrier  from  an  action  for 
negligence :  Woodward  v.  Conklin  &  Son,  Appellate  Division, 
March,  1916. 

§  30.  REVENUES  OR  BENEFITS  FROM  OTHER  SOURCES 
NOT  TO  AFFECT  COMPENSATION. — No  benefits,  savings  or 
insurance  of  the  injured  employee,  independent  of  the 
provisions  of  this  chapter,  shall  be  considered  in  deter- 
mining the  compensation  or  benefits  to  be  paid  under  this 


APPENDIX  A  331 

chapter,  except  that,  in  case  of  the  death  of  an  employee 
of  the  state,  a  municipal  corporation  or  any  other  political 
subdivision  of  the  state,  any  benefit  payable  under  a  pen- 
sion system  which  is  not  sustained  in  whole  or  in  part 
by  the  contributions  of  the  employee,  may  be  applied 
toward  the  payment  of  the  death  benefit  provided  by  this 
chapter.  [Section  30  am'd  by  L.  1914,  ch.  316.] 

§  31.  AGREEMENT  FOR  CONTRIBUTION  BY  EMPLOYEE 
VOID. — No  agreement  by  an  employee  to  pay  any  por- 
tion of  the  premium  paid  by  his  employer  to  the  state 
insurance  fund  or  to  contribute  to  a  benefit  fund  or 
department  maintained  by  such  employer  or  to  the  cost 
of  mutual  insurance  or  other  insurance,  maintained  for 
or  carried  for  the  purpose  of  providing  compensation  as 
herein  required,  shall  be  valid,  and  any  employer  who 
makes  a  deduction  for  such  purpose  from  the  wages  or 
salary  of  any  employee  entitled  to  the  benefits  of  this 
chapter  shall  be  guilty  of  a  misdemeanor. 

§  32.  WAIVER  AGREEMENTS  VOID. — No  agreement  by 
an  employee  to  waive  his  right  to  compensation  under 
this  chapter  shall  be  valid. 

A  contract  provision  by  which  each  party  exempts  the  other 
from  all  acts  of  fault  or  omission  is  ineffective:  Powley  v. 
Vivian  &  Co.,  169  App.  Div.  176. 

§  33.  ASSIGNMENTS;  EXEMPTIONS. — Claims  for  com- 
pensation or  benefits  due  under  this  chapter  shall  not  be 
assigned,  released  or  commuted  except  as  provided  by 
this  chapter,  and  shall  be  exempt  from  all  claims  of 
creditors  and  from  levy,  execution  and  attachment  or 
other  remedy  for  recovery  or  collection  of  a  debt,  which 
exemption  may  not  be  waived.  Compensation  and  bene- 
fits shall  be  paid  only  to  employees  or  their  dependents. 


332  COMPENSATION  INSURANCE 

"Except  as  provided,"  compare  §  29. 

Release  of  the  employer  by  an  administrator  for  a  con- 
sideration does  not  debar  dependents  from  compensation: 
Buell  v.  N.  Y.  C  &  H.  R.  R.  R.  Co,  S.  D.  R,  vol.  6,  pp.  361, 
377.  See  also  note  under  §  29. 

An  employee  may  not  assign  to  his  physician  an  award  of  com- 
pensation for  medical  treatment :  Bloom  v.  Jaffe,  94  Misc.  2.2.2.. 

§  34.  PREFERENCES. — The  right  of  compensation 
granted  by  this  chapter  and  any  awards  made  there- 
under shall  have  the  same  preference  or  lien  without 
limit  of  amount  against  the  assets  of  the  employer  as  is 
now  or  hereafter  may  be  allowed  by  law  for  a  claim 
for  unpaid  wages  for  labor.  [As  am'd  by  L.  1916,  ch. 
622.] 

ARTICLE  3 
SECURITY  FOR  COMPENSATION 

Section  50.  Security  for  payment  of  compensation. 

51.  Posting  of  notice  regarding  compensation. 

52.  Effect   of   failure  to   secure  compensation. 

53.  Release  from  all  liability. 

54.  The  insurance  contract. 

§  50.  SECURITY  FOR  PAYMENT  OF  COMPENSATION. — An 
employer  shall  secure  compensation  to  his  employees  in 
one  of  the  following  ways : 

1.  By  insuring  and  keeping  insured  the  payment  of 
such  compensation  in  the  state  fund,  or 

2.  By  insuring  and  keeping  insured  the  payment  of 
such  compensation  with  any  stock  corporation  or  mutual 
association  authorized  to  transact  the  business  of  work- 
men's  compensation  insurance  in  this  state.     If  insur- 
ance be   so   effected   in   such   a   corporation   or   mutual 
association  the  employer   shall   forthwith  file  with  the 


APPENDIX  A  333 

commission,  in  form  prescribed  by  it,  a  notice  specifying 
the  name  of  such  insurance  corporation  or  mutual  asso- 
ciation and  such  information  regarding  the  policies  as 
the  commission  may  require.  [Subd.  2  amd  by  L.  1916, 
ch.  622.] 

Mutual  employers'  liability  and  workmen's  compensation  cor- 
porations arc  governed  by  the  insurance  law,  §§  185-194,  as  added 
by  L.  1913,  ch.  832,  and  amended  by  L.  1915,  ch.  506,  and  §  67,  as 
added  by  L.  1914,  ch.  16. 

3.  By  furnishing  satisfactory  proof  to  the  commission 
of  his  financial  ability  to  pay  such  compensation  for  him- 
self, in  which  case  the  commission  may,  in  its  discretion, 
require  the  deposit  with  the  commission  of  securities 
of  the  kind  prescribed  in  section  thirteen  of  the  insurance 
law,  in  an  amount  to  be  determined  by  the  commission, 
to  secure  his  liability  to  pay  the  compensation  provided 
in  this  chapter.  The  commission  shall  have  the  authority 
to  revoke  its  consent  furnished  under  this  section  at 
any  time  for  good  cause  shown. 

If  an  employer  fail  to  comply  with  this  section,  he  shall 
be  liable  to  a  penalty  [for  the  time]  during  which  such 
failure  continues  of  an  amount  equal  to  the  pro  rata 
premium  which  would  have  been  payable  for  insurance 
in  the  state  fund  for  such  period  of  nonconapliance  to 
be  recovered  in  an  action  brought  by  the  commission. 

The  commission  may,  in  its  discretion,  for  good  cause 
shown,  remit  any  such  penalty,  provided  the  employer 
in  default  secure  compensation  as  provided  in  this  sec- 
tion. [Subd.  3  am'd  by  L.  1914,  ch.  316;  and  L.  1916,  ch. 
622.] 

§  51.  POSTING  OF  NOTICE  REGARDING  COMPENSATION. 
—Every  employer  who  has  complied  with  section  fifty 
of  this  chapter  shall  post  and  maintain  in  a  conspicuous 
place  or  places  in  and  about  his  place  or  places  of  busi- 


334  COMPENSATION  INSURANCE 

ness  typewritten  or  printed  notices  in  form  prescribed 
by  the  commission,  stating  the  fact  that  he  has  complied 
with  all  the  rules  and  regulations  of  the  commission  and 
that  he  has  secured  the  payment  of  compensation  to  his 
employees  and  their  dependents  in  accordance  with  the 
provisions  of  this  chapter. 

§  52.  EFFECT  OF  FAILURE  TO  SECURE  COMPENSATION. 
— Failure  to  secure  the  payment  of  compensation  shall 
constitute  a  misdemeanor  and  have  the  effect  of  enabling 
the  injured  employee,  or  in  case  of  death,  his  dependents 
or  legal  representatives,  to  maintain  an  action  for  dam- 
ages in  the  courts,  as  prescribed  by  section  eleven  of  this 
chapter.  [As  am'd  by  L.  1916,  ch.  622.] 

Compare  note  to  §  n. 

§  53.  RELEASE  FROM  ALL  LIABILITY. — An  employer  se- 
curing the  payment  of  compensation  by  contributing  pre- 
miums to  the  state  fund  shall  thereby  become  relieved 
from  all  liability  for  personal  injuries  or  death  sustained 
by  his  employees,  and  the  persons  entitled  to  compensa- 
tion under  this  chapter  shall  have  recourse  therefor  only 
to  the  state  fund  and  not  to  the  employer.  An  employer 
shall  not  otherwise  be  relieved  from  the  liability  for  com- 
pensation prescribed  by  this  chapter  except  by  the  pay- 
ment thereof  by  himself  or  his  insurance  carrier. 

Compare  amendment  to  §  n,  effected  by  L.  1916,  ch.  622;  com- 
pare also,  on  question  of  protection,  Jensen  v.  Southern  Pacific 
Co.,  215  N.  Y.  514;  McQueeney  v.  Sutphen  &  Myer,  167  App. 
Div.  528;  Crockett  v.  International  Railway  Co.,  170  App.  Div. 
122. 

§  54.  THE  INSURANCE  CONTRACT. — i.  Right  of  re- 
course to  the  insurance  carrier.  Every  policy  of  insur- 
ance covering  the  liability  of  the  employer  for  compensa- 
tion issued  by  a  stock  company  or  by  a  mutual  associa- 


APPENDIX  A  335 

tion  authorized  to  transact  workmen's  compensation  in- 
surance in  this  state  shall  contain  a  provision  setting  forth 
the  right  of  the  commission  to  enforce  in  the  name  of  the 
people  of  the  state  of  New  York  for  the  benefit  of  the 
person  entitled  to  the  compensation  insured  by  the  policy 
either  by  filing  a  separate  application  or  by  making  the 
insurance  carrier  a  party  to  the  original  application,  the 
liability  of  the  insurance  carrier  in  whole  or  in  part  for 
the  payment  of  such  compensation;  provided,  however, 
that  payment  in  whole  or  in  part  of  such  compensation 
by  either  the  employer  or  the  insurance  carrier  shall  to  the 
extent  thereof  be  a  bar  to  the  recovery  against  the  other 
of  the  amount  so  paid. 

2.  Knowledge  and  jurisdiction  of  the  employer  ex- 
tended to  cover  the  insurance  carrier.  Every  such  policy 
shall  contain  a  provision  that,  as  between  the  employee 
and  the  insurance  carrier,  the  notice  to  or  knowledge  of 
the  occurrence  of  the  injury  on  the  part  of  the  employer 
shall  be  deemed  notice  or  knowledge,  as  the  case  may  be, 
on  the  part  of  the  insurance  carrier;  that  jurisdiction  of 
the  employer  shall,  for  the  purpose  of  this  chapter,  be 
jurisdiction  of  the  insurance  carrier  and  that  the  insur- 
ance carrier  shall  in  all  things  be  bound  by  and  subject 
to  the  orders,  findings,  decisions  or  awards  rendered 
against  the  employer  for  the  payment  of  compensation 
under  the  provisions  of  this  chapter. 

-3.  Insolvency  of  employer  does  not  release  the  insur- 
ance carrier.  Every  such  policy  shall  contain  a  provision 
to  the  effect  that  the  insolvency  or  bankruptcy  of  the 
employer  shall  not  relieve  the  insurance  carrier  from  the 
payment  of  compensation  for  injuries  or  death  sustained 
by  an  employee  during  the  life  of  such  policy. 

4.  Limitation  of  indemnity  agreements.  Every  con- 
tract or  agreement  of  an  employer  the  purpose  of  which 


336  COMPENSATION  INSURANCE 

is  to  indemnify  him  from  loss  or  damage  on  account 
of  the  injury  of  an  employee  by  accidental  means,  or  on 
account  of  the  negligence  of  such  employer  or  his  officer, 
agent  or  servant,  shall  be  absolutely  void  unless  it  shall 
also  cover  liability  for  the  payment  of  the  compensation 
provided  for  by  this  chapter. 

5.  Cancellation  of  insurance  contracts.     No  contract 
of  insurance  issued  by  an  insurance  carrier  against  lia- 
bility arising  under  this  chapter  shall  be  cancelled  within 
the  time  limited  in  such  contract  for  its  expiration  until 
at  least  ten  days  after  a  notice  of  cancellation  of  such 
contract,  on  a  date  specified  in  such  notice,  shall  be  filed 
in  the  office  of  the  commission  and  also  served  on  the 
employer.     Such  notice  shall  be  served  on  the  employer 
by  delivering  it  to  him  or  by  sending  it  by  mail,  by  reg- 
istered letter,  addressed  to  the  employer  at  his  or  its  last 
known  place  of  residence ;  provided  that,  if  the  employer 
be  a  partnership,  then  such  notice  may  be  so  given  to 
any  one  of  the  partners,  and  if  the  employer  be  a  cor- 
poration then  the  notice  may  be  given  to  any  agent  or 
officer  of  the  corporation  upon  whom  legal  process  may 
be  served.     Provided,  however,  the  right  to  cancellation 
of  a  policy  of  insurance  in  the  state  fund  shall  be  exer- 
cised only  for  nonpayment  of  premiums.     [Subd.  5  am'd 
by  L.  1916,  ch.  622.] 

Sections  54  and  20  are  to  be  read  together.  The  Commission 
has  full  jurisdiction  of  disputes  between  employer  and  insurer 
according  to  an  opinion  of  the  Attorney-General  rendered  August 
16,  1915.  Compare  McCaffrey  v.  Tager  Contracting  Co.,  S.  D. 
R.,  vol.  5,  p.  434;  and  Bloom  v.  Tilin  &  Bleek,  S.  D.  R.,  vol.  5, 
p.  441. 

6.  Any  insurance  carrier  may  issue  policies,  including 
with  employees,  employers  who  perform  labor  incidental 
to  their  occupations,  such  policies  insuring  to  such  em- 


APPENDIX  A 

ployers  the  same  compensations  provided  for  their  em- 
ployees, and  at  the  same  rates ;  provided,  however,  that 
the  estimation  of  their  wage  values,  respectively,  shall  be 
reasonable  and  separately  stated  in  and  added  to  the  valu- 
ation of  their  pay  rolls  upon  which  their  premium  is 
computed.  The  employer  so  insured  shall  have  the  same 
rights  and  remedies  given  an  employee  by  this  chapter. 
[Subd.  6  added  by  L.  1916,  ch.  622.] 


ARTICLE  4 
STATE  WORKMEN'S  COMPENSATION  COMMISSION 

Section  60.  State  workmen's   compensation  commission.* 

61.  Secretary,  deputies  and  other  employees.* 

62.  Salaries  and  expenses. 

63.  Office. 

64.  Sessions  of  commission. 

65.  Powers  of  individual  commissioners  and  deputy  com- 

missioners. 

66.  Powers  and  duties  of  secretary. 

67.  Rules. 

68.  Technical    rules   of   evidence   or   procedure   not    re- 

quired. 

69.  Issue  of  subpoena;  penalty  for  failure  to  obey. 

70.  Recalcitrant  witnesses  punishable  as  for  contempt. 

71.  Fees  and  mileage  of  witnesses. 

72.  Depositions. 

73.  Transcript  of  stenographer's  minutes;  effect  as  evi- 

dence. 

74.  Jurisdiction  of  commission  to  be  continuing. 

75.  Report  of  commission. 

*  §§  60,  61,  of  the  Workmen's  Compensation  Law  were  re- 
pealed, and  the  functions  of  the  Workmen's  Compensation  Com- 
mission transferred  to  the  newly  created  Industrial  Commission, 
by  L.  1915,  ch.  674,  §§  2-8.  For  organization  and  functions 
of  the  Industrial  Commission,  compare  Labor  Law  §§  40-526. 


338  COMPENSATION  INSURANCE 

76.  Commission  to  furnish  blank  forms. 

77.  Expenses  of  administering  commission. 

§  62.  EXPENSES. — The  commission  may  make  the  nec- 
essary expenditure  to  obtain  statistical  and  other  infor- 
mation to  establish  classifications  of  employments  with 
respect  to  hazards  and  risks.  The  expenses  of  the  com- 
mission, including  the  premiums  to  be  paid  by  the  state 
treasurer  for  the  bond  to  be  furnished  by  him,  shall  be 
paid  out  of  the  state  treasury  upon  vouchers  signed  by 
at  least  two  commissioners.  [As  am'd  by  L.  1915,  ch. 

674.1 

§  63.  OFFICE. — The  commission  shall  keep  and  main- 
tain its  principal  office  in  the  city  of  Albany,  in  rooms  in 
the  capitol  assigned  by  the  trustees  of  public  buildings. 
The  office  shall  be  supplied  with  necessary  office  furniture, 
supplies,  books,  maps,  stationery,  telephone  connections 
and  other  necessary  appliances,  at  the  expense  of  the 
state,  payable  in  the  same  manner  as  other  expenses  of 
the  commission. 

§  64.  SESSIONS  OF  COMMISSION. — The  commission 
shall  be  in  continuous  session  and  open  for  the  transac- 
tion of  business  during  all  business  hours  of  every  day 
excepting  Sundays  and  legal  holidays.  All  sessions  shall 
be  open  to  the  public  and  may  be  adjourned,  upon  entry 
thereof  in  its  records,  without  further  notice.  Whenever 
convenience  of  parties  will  be  promoted  or  delay  and 
expense  prevented,  the  commission  may  hold  sessions  in 
cities  other  than  the  city  of  Albany.  A  party  may  appear 
before  such  commission  and  be  heard  in  person  or  by 
attorney.  Every  vote  and  official  act  of  the  commission 
shall  be  entered  of  record,  and  the  records  shall  contain 
a  record  of  each  case  considered,  and  the  award,  decision 
or  order  made  with  respect  thereto,  and  all  voting  shall 


APPENDIX  A  339 

be  by  the  calling  of  each  commissioner's  name  by  the 
secretary  and  each  vote  shall  be  recorded  as  cast.  A  ma- 
jority of  the  commission  shall  constitute  a  quorum.  A 
vacancy  shall  not  impair  the  right  of  the  remaining  com- 
missioners to  exercise  all  the  powers  of  the  full  commis- 
sion so  long  as  a  majority  remains. 

§  65.  POWERS  OF  INDIVIDUAL  COMMISSIONERS  AND 
DEPUTY  COMMISSIONERS. — Any  investigation,  inquiry  or 
hearing  which  the  commission  is  authorized  to  hold  or 
undertake  may  be  held  or  taken  by  or  before  any  com- 
missioner or  deputy  commissioner,  and  the  award,  deci- 
sion or  order  of  a  commissioner  or  deputy  commissioner, 
when  approved  and  confirmed  by  the  commission  and  or- 
dered filed  in  its  office,  shall  be  deemed  to  be  the  award, 
decision  or  order  of  the  commission.  Each  commissioner 
and  deputy  shall,  for  the  purposes  of  this  chapter,  have 
power  to  administer  oaths,  certify  to  official  acts,  take 
depositions,  issue  subpoenas,  compel  the  attendance  of 
witnesses  and  the  production  of  books,  accounts,  papers, 
records,  documents  and  testimony.  The  commission  may 
authorize  any  deputy  to  conduct  any  such  investigation, 
inquiry  or  hearing,  in  which  case  he  shall  have  the  power 
of  a  commissioner  in  respect  thereof. 

§  66.  POWERS  AND  DUTIES  OF  SECRETARY. — The  secre- 
tary of  the  commission  shall: 

i.  Maintain  a  full  and  true  record  of  all  proceedings  of 
the  commission,  of  all  documents  or  papers  ordered  filed 
by  the  commission,  of  decisions  or  orders  made  by  a  com- 
missioner or  deputy  commissioner,  and  of  all  decisions  or 
orders  made  by  the  commission  or  approved  and  con- 
firmed by  it  and  ordered  filed,  and  he  shall  be  responsible 
to  the  commission  for  the  safe  custody  and  preservation 
of  all  such  documents  at  its  office ; 


340  COMPENSATION  INSURANCE 

2.  Have  power  to  administer  oaths  in  all  parts  of  the 
state,  so  far  as  the  exercise  of  such  power  is  properly 
incident  to  the  performance  of  his  duty  or  that  of  the 
commission ; 

3.  Designate,  from  time  to  time,  with  the  approval  of 
the  commission,  one  of  the  clerks  appointed  by  the  com- 
mission to  exercise  the  powers  and  duties  of  the  secretary 
during  his  absence ; 

4.  Under  the  direction  of  the  commission,  have  gen- 
eral charge  of  its  office,  superintend  its  clerical  business, 
and  perform  such  other  duties  as  the  commission  may 
prescribe. 

The  duties  prescribed  by  this  section  devolve  upon  the  secre- 
tary of  the  Industrial  Commission  under  the  Labor  Law,  §  49. 

§  67.  RULES. — The  commission  shall  adopt  reasonable 
rules,  not  inconsistent  with  this  chapter,  regulating  and 
providing  for 

1.  The  kind  and  character  of  notices,  and  the  service 
thereof,  in  case  of  accident  and  injury  to  employees; 

2.  The  nature  and  extent  of  the  proofs  and  evidence, 
and  the  method  of  taking  and  furnishing  the  same,  to 
establish  the  right  to  compensation ; 

3.  The  forms  of  application  for  those  claiming  to  be 
entitled  to  compensation; 

4.  The  method  of  making  investigations,  physical  ex- 
aminations and  inspections ; 

5.  The  time  within  which  adjudications  and  awards 
shall  be  made  ; 

6.  The   conduct   of   hearings,    investigations    and    in- 
quiries ; 

7.  The  giving  of  undertakings  by  all  subordinates  who 
are  empowered  to  receive  and  disburse  moneys,  to  be 


APPENDIX  A  341 

approved  by  the  attorney-general  as  to  form  and  by  the 
comptroller  as  to  sufficiency ; 

8.  Carrying  into  effect  the  provisions  of  this  chapter. 

9.  The  collection,  maintenance  and  disbursement  of  the 
state  insurance  fund.     [Punctuation  of  §  67  am'd  by  L. 
1916,  ch.  622.] 

§  68.  TECHNICAL  RULES  OF  EVIDENCE  OR  PROCEDURE 
NOT  REQUIRED. — The  commission  or  a  commissioner  or 
deputy  commissioner  in  making  an  investigation  or  in- 
quiry or  conducting  a  hearing  shall  not  be  bound  by  com- 
mon law  or  statutory  rules  of  evidence  or  by  technical  or 
formal  rules  of  procedure,  except  as  provided  by  this 
chapter;  but  may  make  such  investigation  or  inquiry  or 
conduct  such  hearing  in  such  manner  as  to  ascertain  the 
substantial  rights  of  the  parties. 

Section  67,  above,  requires  the  Commission  to  adopt  reason- 
able rules  of  evidence,  not  inconsistent  with  the  Workmen's 
Compensation  Law. 

The  courts  have  repeatedly  emphasized  the  independence  of 
precedents  permitted  and  suggested  by  this  section:  Rheinwald 
v.  Builders'  Brick  &  Supply  Co.,  168  App.  Div.  425 ;  Kenny  v. 
Union  Railway  Co.,  166  App.  Div.  497;  Carroll  v.  Knickerbocker 
Ice  Co.,  169  App.  Div.  450;  Dale  v.  Saunders  Bros.,  171  App. 
Div.  528;  218  N.  Y.  59. 

Section  20  makes  the  decisions  of  the  Commission  "final  as  to 
all  questions  of  fact."  For  the  jurisdiction  of  the  courts  to  re- 
view the  evidence  in  compensation  cases,  see  Goldstein  v.  Centre 
Iron  Works,  167  App.  Div.  526;  Carroll  v.  Knickerbocker  Ice 
Co.,  169  App.  Div.  450;  Gardner  v.  Horseheads  Construction  Co., 
171  App.  Div.  66;  Rhyner  v.  Hueber  Building  Co.,  171  App. 
Div.  58.  The  opinion  in  the  Carroll  case  admits  the  validity  of 
hearsay  evidence ;  the  opinion  in  the  Rhyner  case  declares  that 
"if  there  are  no  facts  in  the  case  *  *  *  a  question  of  law 
arises"  which  gives  the  courts  jurisdiction. 

§  69.  ISSUE  OF  SUBPOENA;  PENALTY  FOR  FAILURE  TO 
OBEY. — A  subpoena  shall  be  signed  and  issued  by  a  com- 


COMPENSATION  INSURANCE 

missioner,  a  deputy  commissioner  or  by  the  secretary  of 
the  commission  and  may  be  served  by  any  person  of 
full  age  in  the  same  manner  as  a  subpoena  issued  out  of 
a  court  of  record.  If  a  person  fail,  without  reasonable 
cause,  to  attend  in  obedience  to  a  subpoena,  or  to  be  sworn 
or  examined  or  answer  a  question  or  produce  a  book  or 
paper,  or  to  subscribe  and  swear  to  his  deposition  after 
it  has  been  correctly  reduced  to  writing,  he  shall  be  guilty 
of  a  misdemeanor. 

§  70.  RECALCITRANT  WITNESSES  PUNISHABLE  AS  FOR 
CONTEMPT. — If  a  person  in  attendance  before  the  com- 
mission or  a  commissioner  or  deputy  commissioner  re- 
fuses, without  reasonable  cause,  to  be  examined,  or  to 
answer  a  legal  and  pertinent  question  or  to  produce  a 
book  or  paper,  when  ordered  so  to  do  by  the  commission 
or  a  commissioner  or  deputy  commissioner,  the  commis- 
sion may  apply  to  a  justice  of  the  supreme  court  upon 
proof  by  affidavit  of  the  facts  for  an  order  returnable 
in  not  less  than  two  nor  more  than  five  days  directing 
such  person  to  show  cause  before  the  justice  who  made 
the  order,  or  any  other  justice  of  the  supreme  court, 
why  he  should  not  be  committed  to  jail.  Upon  the  return 
of  such  order  the  justice  shall  examine  under  oath  such 
person  and  give  him  an  opportunity  to  be  heard;  and  if 
the  justice  determine  that  he  has  refused  without  reason- 
able cause  or  legal  excuse  to  be  examined  or  to  answer  a 
legal  and  pertinent  question,  or  to  produce  a  book  or  paper 
which  he  was  ordered  to  bring,  he  may  forthwith,  by  war- 
rant, commit  the  offender  to  jail,  there  to  remain  until 
he  submits  to  do  the  act  which  he  was  so  required  to  do 
or  is  discharged  according  to  law. 

"  §  71.  FEES  AND  MILEAGE  OF  WITNESSES. — Each  wit- 
ness who  appears  in  obedience  to  a  subpoena  before  the 
commission  or  a  •commissioner  or  deputy  commissioner, 


APPENDIX  A  343 

or  person  employed  by  the  commission  to  obtain  the  re- 
quired information,  shall  receive  for  his  attendance  the 
fees  and  mileage  provided  for  witnesses  in  civil  cases  in 
the  supreme  court,  which  shall  be  audited  and  paid 
from  the  state  treasury  in  the  same  manner  as  other  ex- 
penses of  the  commission.  A  witness  subpoenaed  at  the 
instance  of  a  party  other  than  the  commission,  a  commis- 
sioner, deputy  commissioner  or  person  acting  under  the 
authority  of  the  commission  shall  be  entitled  to  fees  or 
compensation -from  the  state  treasury,  if  the  commission 
certify  that  his  testimony  was  material  to  the  matter  in- 
vestigated, but  not  otherwise. 

§  72.  DEPOSITIONS. — The  commission  may  cause  depo- 
sitions of  witnesses  residing  within  or  without  the  state 
to '  be  taken  in  the  manner  prescribed  by  law  for  like 
depositions  in  civil  actions  in  the  supreme  court. 

§  73.  TRANSCRIPT  OF  STENOGRAPHER'S  MINUTES;  EF- 
FECT AS  EVIDENCE. — A  transcribed  copy  of  the  testimony, 
evidence  and  procedure  or  of  a  specific  part  thereof,  or 
of  the  testimony  of  a  particular  witness  or  of  a  specific 
part  thereof,  on  any  investigation,  by  a  stenographer  ap- 
pointed by  the  commission,  being  certified  by  such  stenog- 
rapher to  be  a  true  and  correct  transcript  thereof  and 
to  have  been  carefully  compared  by  him  with  his  original 
notes,  may  be  received  in  evidence  by  the  commission 
with  the  same  effect  as  if  such  stenographer  were  present 
and  testified  to  the  facts  so  certified,  and  a  copy  of  such 
.transcript  shall  be  furnished  on  demand  to  any  party 
upon  payment  of  the  fee  provided  for  a  transcript  of 
similar  minutes  in  the  supreme  court. 

§  74.  JURISDICTION  OF  COMMISSION  TO  BE  CONTINUING. 

—The  power  and  jurisdiction  of  the  commission  over 

each  case  shall  be  continuing,  and  it  may,  from  time  to 


344  COMPENSATION  INSURANCE 

time,  make  such  modification  or  change  with  respect  to 
former  findings  or  orders  relating  thereto,  as  in  its  opin- 
ion may  be  just. 

Compare  §  22. 

§  75.  REPORT  OF  COMMISSION. — Annually  on  or  before 
the  first  day  of  February,  the  commission  shall  make  a 
report  to  the  legislature,  which  shall  include  a  statement 
of  the  number  of  awards  made  by  it  and  the  causes  of 
the  accidents  leading  to  the  injuries  for  which  the  awards 
were  made,  a  detailed  statement  of  the  expenses  of  the 
commission,  the  condition  of  the  state  insurance  fund,  to- 
gether with  any  other  matter  which  the  commission  deems 
proper  to  report  to  the  legislature,  including  any  recom- 
mendations it  may  desire  to  make. 

L.  1916,  ch.  622,  although  including  it,  made  no  change  in  this 
section. 

§  76.  COMMISSION  TO  FURNISH  BLANK  FORMS. — The 
commission  shall  prepare  and  cause  to  be  distributed  so 
that  the  same  may  be  readily  available  blank  forms  of 
application  for  compensation,  notice  to  employers,  proofs 
of  injury  or  death,  of  medical  or  other  attendance  or 
treatment,  of  employment  and  wage  earnings,  and  for 
such  other  purposes  as  may  be  required.  Insured  em- 
ployers shall  constantly  keep  on  hand  a  sufficient  supply 
of  such  blanks. 

§  77.  EXPENSES  OF  ADMINISTERING  COMMISSION. — As 
soon  as  practicable  after  July  first,  nineteen  hundred  and 
seventeen,  and  annually  thereafter,  the  commission  shall 
ascertain  the  total  amount  of  its  expenses  incurred  dur- 
ing the  preceding  fiscal  year,  in  connection  with  the  ad- 
ministration of  the  workmen's  compensation  law,  and 
shall  thereupon  assess  upon  and  collect  from  each  insur- 


APPENDIX  A  345 

ance  carrier,  including  the  state  insurance  fund,  the 
proportion  of  such  expense  that  the  total  compensation 
or  payments  made  by  such  carrier  in  such  year  bore  to 
the  total  compensation  or  payments  made  by  all  insurance 
carriers.  The  amounts  so  secured  shall  be  transferred  to 
the  state  treasury  to  reimburse  it  for  this  portion  of  the 
expense  of  administering  this  .chapter.  [Added  by  L. 
1916,  ch.  622.] 

Compare  §  94.  Under  §§  26  and  no  all  penalties  imposed  by 
the  Workmen's  Compensation  Law  are  applicable  to  the  expenses 
of  the  Commission.  For  references  to  penalties,  see  note  to 
§  1 10. 

ARTICLE  5 
STATE  INSURANCE  FUND 

Section  90.  Creation  of  state  fund. 

91.  State  treasurer  custodian  of  fund. 

92.  Surplus  and   reserve. 

93.  Investment  of  surplus  or  reserve. 

94.  Administration  expense. 

95.  Classification  of  risks  and  adjustment  of  premiums. 

96.  Associations  for  accident  prevention. 

97.  Requirements   in  classifying  employment  and  fixing 

and  adjusting  premium  rates. 

98.  Time  of  payment  of  premiums. 

99.  Action  for  collection  in  case  of  default. 

100.  Withdrawal  from  fund. 

101.  Audit  of  payrolls. 

102.  Falsification  of  payroll. 

103.  Willful   misrepresentation. 

104.  Inspections. 

105.  Disclosures   prohibited. 

106.  Reports  of  state  insurance  fund;  examination  by  in- 

surance department. 

§  90.  CREATION  OF  STATE  FUND. — There  is  hereby  cre- 
ated a  fund  to  be  known  as  "the  state  insurance  fund," 


346  COMPENSATION  INSURANCE 

for  the  purpose  of  insuring  employers  against  liability 
under  this  chapter  and  of  assuring  to  the  persons  entitled 
thereto  the  compensation  provided  by  this  chapter.  Such 
fund  shall  consist  of  all  premiums  received  and  paid 
into  the  fund,  of  property  and  securities  acquired  by  and 
through  the  use  of  moneys  belonging  to  the  fund  and  of 
interest  earned  upon  moneys  belonging  to  the  fund  and 
deposited  or  invested  as  herein  provided.  Such  fund 
shall  be  administered  by  the  commission  without  liability 
on  the  part  of  the  state  beyond  the  amount  of  such 
fund.  Such  fund  shall  be  applicable  to  the  payment  of 
losses  sustained  on  account  of  insurance  and  to  the 
payment  of  expenses  in  the  manner  provided  in  this 
chapter. 

§  91.  STATE  TREASURER  CUSTODIAN  OF  FUND. — The 
state  treasurer  shall  be  the  custodian  of  the  state  insur- 
ance fund ;  and  all  disbursements  therefrom  shall  be 
paid  by  him  upon  vouchers  authorized  by  the  commis- 
sion and  signed  by  any  two  members  thereof.  The 
state  treasurer  shall  give  a  separate  and  additional  bond 
in  an  amount  to  be  fixed  by  the  governor  and  with 
sureties  approved  by  the  state  comptroller  conditioned 
for  the  faithful  performance  of  his  duty  as  custodian  of 
the  state  fund.  The  state  treasurer  may  deposit  any 
portion  of  the  state  fund  not  needed  for  immediate  use, 
in  the  manner  and  subject  to  all  the  provisions  of  law 
respecting  the  deposit  of  other  state  funds  by  him.  In- 
terest earned  by  such  portion  of  the  state  insurance  fund 
deposited  by  the  state  treasurer  shall  be  collected  by  him 
and  placed  to  the  credit  of  the  fund. 

§  92.  SURPLUS  AND  RESERVES.— Ten  per  centum  of  the 
premiums  collected  from  employers  insured  in  the  fund 
shall  be  set  aside  by  the  commission  for  the  creation  of 
a  surplus  until  such  surplus  shall  amount  to  the  sum 


APPENDIX  A  347 

of  one  hundred  thousand  dollars,  and  thereafter  five  per 
centum  of  such  premiums,  until  such  time  as  in  the  judg- 
ment of  the  commission  such  surplus  shall  be  sufficiently 
large  to  cover  the  catastrophe  hazard.  The  commission 
shall  also  set  up  and  maintain  reserves  adequate  to  meet 
anticipated  losses  and  carry  all  claims  and  policies  to 
maturity,  which  reserves  shall  be  computed  in  accordance 
with  such  rules  as  shall  be  approved  by  the  superintendent 
of  insurance.  [As  amd  by  L.  1916,  ch.  622.] 

§  93.  INVESTMENT  OF  SURPLUS  OR  RESERVE. — Any  of 
the  surplus  or  reserve  funds  belonging  to  the  state  insur- 
ance fund  may,  pursuant  to  a  resolution  of  the  commis- 
sion approved  by  the  superintendent  of  insurance,  be  in- 
vested in  or  loaned  on  the  pledge  of  any  of  the  securities 
in  which  deposits  of  insurance  corporations  are  required 
to  be  invested  pursuant  to  section  thirteen  of  the  insur- 
ance law,  or  in  the  public  stocks  or  bonds  of  any  one  of 
the  United  States,  or  in  bonds  and  mortgages  on  im- 
proved unencumbered  real  property  in  this  state  worth 
fifty  per  centum  more  than  the  amount  loaned  thereon. 
All  such  securities  or  evidences  of  indebtedness  shall  be 
placed  in  the  hands  of  the  state  treasurer  who  shall  be 
the  custodian  thereof.  He  shall  collect  the  principal  and 
interest  thereof,  when  due,  and  pay  the  same  into  the 
state  insurance  fund.  The  state  treasurer  shall  pay  all 
vouchers  drawn  on  the  state  insurance  fund  for  the  mak- 
ing of  such  investments  when  signed  by  two  members  of 
the  commission,  upon  delivery  of  such  securities  or  evi- 
dences of  indebtedness  to  him,  when  there  is  attached  to 
such  vouchers  a  certified  copy  of  the  resolution  of  the 
commission  authorizing  the  investment.  The  commission 
may,  upon  like  resolution  approved  by  the  superintendent 
of  insurance,  sell  any  of  such  securities.  [As  am'd  by  L. 
1916,  ch.  622.] 


348  COMPENSATION  INSURANCE 

§  94.  ADMINISTRATION  EXPENSE. — The  entire  expense 
of  administering  the  state  insurance  fund  shall  be  paid  in 
the  first  instance  by  the  state,  out  of  moneys  appro- 
priated therefor.  In  the  month  of  July,  nineteen  hun- 
dred and  seventeen,  and  annually  thereafter  in  such 
month,  the  commission  shall  ascertain  the  just  amount 
incurred  by  the  commission  during  the  preceding  fiscal 
year,  in  the  administration  of  the  state  insurance  fund, 
and  shall  refund  such  amount  to  the  state  treasury.  If 
there  be  employees  of  the  commission  other  than  the  com- 
missioners themselves  and  the  secretary  whose  time  is 
devoted  partly  to  the  general  work  of  the  commission 
and  partly  to  the  work  of  the  state  insurance  fund,  and 
in  case  there  is  other  expense  which  is  incurred  jointly 
on  behalf  of  the  general  work  of  the  commission  and 
the  state  insurance  fund,  an  equitable  apportionment  of 
the  expense  shall  be  made  for  such  purpose  and  the  part 
thereof  which  is  applicable  to  the  state  insurance  fund 
shall  be  chargeable  thereto.  [As  amd  by  L.  1916,  ch. 
622.] 

Under  §§  26  and  no  all  penalties  imposed  by  the  Workmen's 
Compensation  Law  are  applicable  to  the  expenses  of  the  Com- 


§  95.  CLASSIFICATION  OF  RISKS  AND  ADJUSTMENT  OF 
PREMIUMS. — Employments  coming  under  the  provisions 
of  this  chapter  shall  be  divided  for  the  purposes  of  the 
state  fund,  into  the  groups  set  forth  in  section  two  of 
this  chapter.  Separate  accounts  shall  be  kept  of  the 
amounts  collected  and  expended  in  respect  to  each  such 
group  for  convenience  in  determining  equitable  rates  ; 
but  for  the  purpose  of  paying  compensation  the  state 
fund  shall  be  deemed  one  and  indivisible.  The  commis- 
sion shall  have  power  to  rearrange  any  of  the  groups 
set  forth  in  section  two  by  withdrawing  any  employment 


APPENDIX  A  349 

embraced  in  it  and  transferring  it  wholly  or  in  part  to 
any  other  group,  and  from  such  employments  to  set  up 
new  groups  at  its  discretion.  The  commission  shall 
determine  the  hazards  of  the  different  classes  compos- 
ing each  group  and  fix  the  rates  of  premiums  therefor 
based  upon  the  total  payroll  and  number  of  employees  in 
each  of  such  classes  of  employment  at  the  lowest  pos- 
sible rate  consistent  with  the  maintenance  of  a  solvent 
state  insurance  fund  and  the  creation  of  a  reasonable 
surplus  and  reserve;  and  for  such  purpose  may  adopt  a 
system  of  schedule  rating  in  such  a  manner  as  to  take 
account  of  the  peculiar  hazard  of  each  individual  risk. 

The  limitations  upon  the  power  of  the  Commission  to  group 
a  single  employer  by  himself  for  rating  and  dividend  purposes 
have  been  set  forth  in  an  opinion  of  the  Attorney-General,  S. 
D.  R.,  vol.  6,  p.  476,  January  26,  1916. 

Under  §  67  of  the  Insurance  Law,  added  by  L.  1914,  ch.  16, 
risks  and  premiums  of  workmen's  compensation,  other  than  those 
of  the  state  fund,  must  be  filed  by  private  insurance  corpora- 
tions or  associations  with  the  superintendent  of  insurance  and 
must  be  approved  by  him  before  going  into  effect. 

§  96,  ASSOCIATIONS  FOR  ACCIDENT  PREVENTION. — The 
employers  in  any  of  the  groups  described  in  section  two 
or  established  by  the  commission  may  with  the  approval 
of  the  commission  form  themselves  into  an  association 
for  accident  prevention,  and  may  make  rules  for  that 
purpose.  If  the  commission  is  of  the  opinion  that  an 
association  so  formed  sufficiently  represents  the  employ- 
ers in  such  group,  it  may  approve  such  rules,  and  when 
so  approved  and  approved  by  the  industrial  board  of  the 
labor  department  they  shall  be  binding  on  all  employers 
in  such  group.  If  such  an  approved  association  appoint 
an  inspector  or  expert  for  the  purpose  of  accident  preven- 
tion, the  commission  may  at  its  discretion  provide  in 
whole  or  in  part  for  the  payment  of  the  remuneration 


350  COMPENSATION  INSURANCE 

and  expenses  of  such  inspector  or  expert,  such  payment 
to  be  charged  in  the  accounting  to  such  group.  Every 
such  approved  association  may  make  recommendations  to 
the  commission  concerning  the  fixing  of  premiums  for 
classes  of  hazards,  and  for  individual  risks  within  such 
group. 

For  the  powers  and  duties  of  directors  of  mutual  employers' 
liability  and  workmen's  compensation  corporations  relative  to 
accident  prevention,  compare  Insurance  Law,  §  193. 

§  97.  REQUIREMENTS  IN  CLASSIFYING  EMPLOYMENT 
AND  FIXING  AND  ADJUSTING  PREMIUM  RATES.*— The  fol- 
lowing requirements  shall  be  observed  in  classifying  em- 
ployments and  fixing  and  adjusting  premium  rates: 

1.  The  commission  shall  keep  an  accurate  account  of 
the  money  paid  in  premiums  by  each  of  the  several  classes 
of  employments  or  industries,  and  the  disbursements  on 
account  of  injuries  and  deaths  of  employees  thereof,  in- 
cluding the  setting  up  of  reserves  adequate  to  meet  antici- 
pated losses  and  to  carry  the  claims  to  maturity,   and 
also,  on  account  of  the  money  received  from  each  indi- 
vidual employer  and  the  amount  disbursed  from  the  state 
insurance  fund  on  account  of  injuries  and  death  of  the 
employees  of  such  employer,  including  the  reserves  so  set 
up; 

2.  On  January  first,  nineteen  hundred  and  fifteen,  and 
every  fifth  year  thereafter,  and  at  such  other  times  as  the 
commission,  in  its  discretion,  may  determine,  a  readjust- 
ment of  the  rate  shall  be  made  for  each  of  the  several 
groups  of  employment  or  industries  and  of  each  hazard 
class  therein,  which,  in  the  judgment  of  the  commission, 
shall  have  developed  an  average  loss  ratio,  in  accordance 
with  the  experience  of  the  commission  in  the  adminis- 
tration of  the  law  as  shown  by  the  accounts  kept  as  pro- 
vided herein ; 


APPENDIX  A  351 

3.  If  any  such  accounting  show  an  aggregate  balance 
(deemed  by  the  commission  to  be  safely  and  properly 
divisible)  remaining  to  the  credit  of  any  class  of  employ- 
ment or  industry,  after  the  amount  required  shall  have 
been  credited  to  the  surplus  and  reserve  funds  and  after 
the  payment  of  all  awards  for  injury  or  death  lawfully 
chargeable  against  the  same,  the  commission  may  in  its 
discretion  credit  to  each  individual  member  of  such  group, 
who  shall  have  been  a  subscriber  to  the  state  insurance 
fund  for  a  period  of  six  months  or  more  prior  to  the  time 
of  such  readjustment,  and  whose  premium  or  premiums 
exceed  the  amount  of  the  disbursements  from  the  fund  on 
account  of  injuries  or  death  of  his  employees  during  such 
period,  on  the  installment  or  installments  of  premiums 
next  due  from  him  such  proportion  of  such  balance  as  the 
amount  of  his  prior  paid  premiums  sustains  to  the  whole 
amount  of  such  premiums  paid  by  the  group  to  which 
he  belongs  since  the  last  readjustment  of  rates.     In  the 
event  that  any  member  of  the  group  who  has  heretofore 
or  shall  hereafter  withdraw  would  have  become  entitled 
to  such  dividend  if  he  had  remained  in  the  fund  the  com- 
mission is  empowered  to  pay  the  amount  of  the  dividend 
to  such  employer.     [Subd.  3  am'd  by  L.  1916,  ch.  622.] 

4.  If  the  amount  of  premiums  collected  from  any  em- 
ployer at  the  beginning  of  any  period  of  six  months  is 
ascertained  and  calculated  by  using  the  estimated  expen- 
diture of  wages  for  the  period  of  time  covered  by  such 
premium   payment   as    a   basis,    an    adjustment   of    the 
amount  of  such  premium  shall  be  made  at  the  end  of 
such  six  months,  and  the  actual  amount  of  such  premium 
shall  be  determined  in  accordance  with  the  amount  of 
the  actual  expenditure  of  wages   for  such  period;  and, 
if  such  wage  expenditure  for  such  period  is  less  than  the 
amount  on  which  such  estimated  premium  was  collected, 


352  COMPENSATION  INSURANCE 

such  employer  shall  be  entitled  to  receive  a  refund  from 
the  state  insurance  fund  of  the  difference  between  the 
amount  so  paid  by  him  and  the  amount  so  found  to  be 
actually  due,  or  to  have  the  amount  of  such  difference 
credited  on  succeeding  premium  payments,  at  his  option ; 
and  if  such  actual  premium,  when  so  ascertained,  ex- 
ceeds in  amount  a  premium  so  paid  by  such  employer  at 
the  beginning  of  such  six  months,  such  employer  shall 
immediately  upon  being  advised  of  the  true  amount  of 
such  premium  due  forthwith  pay  to  the  treasurer  of  the 
state  an  amount  equal  to  the  difference  between  the 
amount  actually  found  to  be  due  and  the  amount  paid 
by  him  at  the  beginning  of  such  six  months'  period. 

§  98.  TIME  OF  PAYMENT  OF  PREMIUMS. — Except  as 
otherwise  provided  in  this  chapter,  all  premiums  shall 
be  paid  by  every  employer  into  the  state  insurance  fund 
on  or  before  July  first,  nineteen  hundred  and  fourteen, 
and  semi-annually  thereafter,  or  at  such  other  time  or 
times  as  may  be  prescribed  by  the  ^commission.  The 
commission  shall  mail  a  receipt  for  the  same  to  the  em- 
ployer and  place  the  same  to  the  credit  of  the  state  in- 
surance fund  in  the  custody  of  the  state  treasurer. 

§  99.  ACTION  FOR  COLLECTION  IN  CASE  OF  DEFAULT. — 
If  an  employer  shall  default  in  any  payment  required 
to  be  made  by  him  to  the  state  insurance  fund,  the 
amount  due  from  him  shall  be  collected  by  civil  action 
against  him  in  the  name  of  the  people  of  the  state  of 
New  York,  and  it  shall  be  the  duty  of  the  commission  on 
the  first  Monday  of  each  month  after  July  first,  nineteen 
hundred  and  fourteen,  to  certify  to  the  attorney-general 
of  the  state  the  names  and  residences,  or  places  of  busi- 
ness", of  all  employers  known  to  the  commission  to  be  in 
default  for  such  payment  or  payments  for  a  longer  period 
than  five  days  and  the  amount  due  from  such  employer, 


APPENDIX  A  353 

and  it  shall  then  be  the  duty  of  the  attorney-general 
forthwith  to  bring  or  cause  to  be  brought  against  each 
such  employer  a  civil  action  in  the  proper  court  for  the 
collection  of  such  amount  so  due,  and  the  same  when 
collected,  shall  be  paid  into  the  state  insurance  fund,  and 
such  employer's  compliance  with  the  provisions  of  this 
chapter  requiring  payments  to  be  made  to  the  state  insur- 
ance fund  shall  date  from  the  time  of  the  payment  of 
said  money  so  collected  as  aforesaid  to  the  state  treas- 
urer for  credit  to  the  state  insurance  fund. 

§  100.  WITHDRAWAL  FROM  FUND. — Any  employer  may, 
upon  complying  with  subdivision  two  or  three  of  section 
fifty  of  this  chapter,  withdraw  from  the  fund  by  turning 
in  his  insurance  contract  for  cancellation,  provided  he 
is  not  in  arrears  for  premiums  due  the  fund  and  has 
given  to  the  commission  written  notice  of  his  intention  to 
withdraw  within  thirty  days  before  the  expiration  of  the 
period  for  which  he  has  elected  to  insure  in  the  fund; 
provided  that  in  case  any  employer  so  withdraws,  his 
liability  to  assessments  shall,  notwithstanding  such  with- 
drawal, continue  for  one  year  after  the  date  of  such 
withdrawal  as  against  all  liabilities  for  such  compensa- 
tion accruing  prior  to  such  withdrawal.  [As  am'd  by  L. 
1916,  ch.  622.] 

This  reference  to  assessment  is  the  only  use  of  the  word  in  the 
Workmen's  Compensation  Law.  The  Attorney-General,  in  an 
opinion  of  July  16,  1915,  has  held  that  assessments  cannot  be 
levied. 

§  101.  AUDIT  OF  PAYROLLS. — Every  employer  who  is 
insured  in  the  state  insurance  fund  shall  keep  a  true  and 
accurate  record  of  the  number  of  his  employees  and  the 
wages  paid  by  him,  and  shall  furnish  to  the  commission, 
upon  demand,  a  sworn  statement  of  the  same.  Such  rec- 
ord shall  be  open  to  inspection  at  any  time  and  as  often 


354  COMPENSATION  INSURANCE 

as  the  commission  shall  require  to  verify  the  number  of 
employees  and  the  amount  of  the  payroll. 

§  102.  FALSIFICATION  OF  PAYROLL. — An  employer  who 
shall  willfully  misrepresent  the  amount  of  the  payroll 
upon  which  the  premiums  chargeable  by  the  state  insur- 
ance fund  is  to  be  based  shall  be  liable  to  the  state  in  ten 
times  the  amount  of  the  difference  between  the  premiums 
paid  and  the  amount  the  employer  should  have  paid  had 
his  payroll  been  correctly  computed  and  the  liability  to 
the  state  under  this  section  shall  be  enforced  in  a  civil 
action  in  the  name  of  the  state  insurance  fund,  and  any 
amount  so  collected  shall  become  a  part  of  such  fund. 

§  103.  WILLFUL  MISREPRESENTATION. — Any  person 
who  willfully  misrepresents  any  fact  in  order  to  obtain 
insurance  in  the  state  insurance  fund  at  less  than  the 
proper  rate  for  such  insurance,  or  in  order  to  obtain  pay- 
ment out  of  such  fund,  shall  be  guilty  of  a  misdemeanor. 

§  104.  INSPECTIONS. — The  commission  shall  have  the 
right  to  inspect  the  plants  and  establishments  of  em- 
ployers insured  in  the  state  insurance  fund ;  and  the  in- 
spectors designated  by  the  commission  shall  have  free 
access  to  such  premises  during  regular  working  hours. 

§  105.  DISCLOSURES  PROHIBITED. — Information  ac- 
quired by  the  commission  or  its  officers  or  employees  from 
employers  or  employees  pursuant  to  this  chapter  shall  not 
be  opened  to  public  inspection,  and  any  officer  or  employee 
of  the  commission  who,  without  authority  of  the  commis- 
sion or  pursuant  to  its  rules  or  as  otherwise  required  by 
law  shall  disclose  the  same  shall  be  guilty  of  a  misde- 
meanor. 

§  106.  REPORTS  OF  STATE  INSURANCE  FUND;  EXAMI- 
NATION BY  INSURANCE  DEPARTMENT. — The  commission 


APPENDIX  A  355 

shall  make  reports  to  the  superintendent  of  insurance 
concerning  the  state  insurance  fund  at  the  same  times  and 
in  the  same  manner  as  is  required  from  mutual  employ- 
ers' liability  and  workmen's  compensation  corporations 
by  section  one  hundred  and  ninety-two  of  the  insurance 
law,  and  the  superintendent  of  insurance  may  examine 
into  the  condition  of  such  state  insurance  fund  at  any 
time,  either  personally  or  by  any  duly  authorized  exam- 
iner appointed  by  him,  for  the  purpose  of  determining  the 
condition  of  the  investments  and  the  adequacy  of  the  re- 
serves of  such  fund.  [Added  by  L.  1916,  ch.  622.] 


ARTICLE  6 
MISCELLANEOUS  PROVISIONS 

Section  no.  Penalties  applicable  to  expense  of  commission, 
in.  Record  and  report  of  injuries  by  employers. 

112.  Information  to  be  furnished  by  employer. 

113.  Inspection   of   records   of  employers. 

114.  Interstate  commerce. 

115.  Penalties   for   false  representations. 

116.  Limitation  of  tirne. 

117.  Duties  of  commissioner  of  labor. 

118.  Unconstitutional  provisions. 

119.  Actions  or  causes  of  action  pending. 

§  no.  PENALTIES  APPLICABLE  TO  EXPENSES  OF  COM- 
MISSION.— All  penalties  imposed  by  this  chapter  shall  be 
applicable  to  the  expenses  of  the  commission.  When  col- 
lected by  the  commission  such  penalties  shall  be  paid  into 
the  state  treasury  and  be  thereafter  appropriated  by  the 
legislature  for  the  purposes  prescribed  by  this  section. 

Penalties  are  prescribed  by  §§  26,  31,  50,  69,  102,  103,  105,  HI, 
115.  Actions  for  their  recovery  may  be  brought  under  §  26. 


356  COMPENSATION  INSURANCE 

§  in.  RECORD  AND  REPORT  OF  INJURIES  BY  EMPLOY- 
ERS.— Every  employer  shall  keep  a  record  of  all  injuries, 
fatal  or  otherwise,  received  by  his  employees  in  the  course 
of  their  employment.  Within  ten  days  after  the  occur- 
rence of  an  accident  resulting  in  personal  injury  a  report 
thereof  shall  be  made  in  writing  by  the  employer  to  the 
commission  upon  blanks  to  be  procured  from  the  commis- 
sion for  that  purpose.  Such  report  shall  state  the  name 
and  nature  of  the  business  of  the  employer,  the  location 
of  his  establishment  or  place  of  work,  the  name,  address 
and  occupation  of  the  injured  employee,  the  time,  nature 
and  cause  of  the  injury  and  such  other  information  as 
may  be  required  by  the  commission.  An  employer  who 
refuses  or  neglects  to  make  a  report  as  required  by  this 
section  shall  be  guilty  of  a  misdemeanor,  punishable  by  a 
fine  of  not  more  than  five  hundred  dollars. 

Compare  Labor  Law,  §§  2O-a,  87  and  126. 

In  regard  to  evidence  of  accidental  injury,  §§  18,  21  and  in 
are  to  be  read  together.  The  employer's  failure  to  give  the  de- 
tails required  by  §  in  has  told  against  him  in  McQueeney  v.  Sut- 
phen  &  Myer,  167  App.  Div.  528;  Kohler  v.  Frohmann,  167  App. 
Div.  533 ;  and  Powley  v.  Vivian  &  Co.,  169  App.  Div.  170. 

§  112.  INFORMATION  TO  BE  FURNISHED  BY  EMPLOYER. — 
Every  employer  shall  furnish  the  commission,  upon  re- 
quest, any  information  required  by  it  to  carry  out  the  pro- 
visions of  this  chapter.  The  commission,  a  commissioner, 
deputy  commissioner,  or  any  person  deputized  by  the 
commission  for  that  purpose,  may  examine  under  oath 
any  employer,  officer,  agent  or  employee.  An  employer 
or  an  employee  receiving  from  the  commission  a  blank 
with  directions  to  file  the  same  shall  cause  the  same  to  be 
properly  filled  out  so  as  to  answer  fully  and  correctly 
all  questions  therein,  or  if  unable  to  do  so,  shall  give  good 
and  sufficient  reasons  for  such  failure.  Answers  to  such 
questions  shall  be  verified  under  oath  and  returned  to  the 


APPENDIX  A  357 

commission  within  the  period  fixed  by  the  commission 
therefor. 

§  113.  INSPECTION  OF  RECORDS  OF  EMPLOYERS. — All 
books,  records  and  payrolls  of  the  employers  showing  or 
reflecting  in  any  way  upon  the  amount  of  wage  expendi- 
tures of  such  employers  shall  always  be  open  for  inspec- 
tion by  the  commission  or  any  of  its  authorized  auditors, 
accountants  or  inspectors  for  the  purpose  of  ascertaining 
the  correctness  of  the  wage  expenditure  and  number  of 
men  employed  and  such  other  information  as  may  be 
necessary  for  the  uses  and  purposes  of  the  commission  in 
the  administration  of  this  chapter. 

§  114.  INTERSTATE  COMMERCE. — The  provisions  of  this 
chapter  shall  apply  to  employers  and  employees  engaged 
in  intrastate,  and  also  in  interstate  or  foreign  commerce, 
for  whom  a  rule  of  liability  or  method  of  compensation 
has  been  or  may  be  established  by  the  congress  of  the 
United  States,  only  to  the  extent  that  their  mutual  con- 
nection with  intrastate  work  may  and  shall  be  clearly 
separable  and  distinguishable  from  interstate  or  foreign 
commerce,  except  that  such  employer  and  his  employees 
working  only  in  this  state  may,  subject  to  the  approval 
and  in  the  manner  provided  by  the  commission  and  so 
far  as  not  forbidden  by  any  act  of  congress,  accept  and 
become  bound  by  the  provisions  of  this  chapter  in  like 
manner  and  with  the  same  effect  in  all  respects  as  pro- 
vided herein  for  other  employers  and  their  employees. 

Compare  §  2,  groups  1-8,  10. 

"Section  114  is  one  of  limitation":  Jensen  v.  Southern  Pacific 
Co.,  215  N.  Y.  514.  521 ;  Post  v.  Burger  &  Gohlke,  216  N.  Y.  544. 

"The  words  'may  be'  should  be  construed  in  the  sense  of 
'shall  be'":  Jensen  v.  Southern  Pacific  Co.,  215  N.  Y.  522. 

The  decisions  of  the  courts  narrow  the  application  of  the  law 
of  negligence  to  accidental  injuries  arising  in  the  interstate  com- 
24 


358  COMPENSATION  INSURANCE 

merce  employments  enumerated  under  a  Workmen's  Compensa- 
tion Law,  §  2,  not  only  to  railroad  accidents  strictly  but  to  rail- 
road accidents  in  which  the  accident  is  due  to  the  railroad's 
negligence.  The  relations  of  federal  and  state  law  in  the  matter 
of  workmen's  compensation  are  discussed  fully  in  the  leading 
case  of  Winfield  v.  N.  Y.  C.  &  H.  R.  R.  R.  Co.,  216  N.  Y.  284.' 
The  coverage  of  the  Workmen's  Compensation  Law  of  New 
York,  from  the  standpoint  of  interstate  commerce,  is  intended  to 
be  just  as  broad  as  federal  law  permits:  Jensen  v.  Southern 
Pacific  Co.,  215  N.  Y.  521.  An  accident  to  an  employee  of  an  in- 
terstate railroad  is  compensable :  if  the  element  of  negligence 
is  absent:  Winfield  v.  N.  Y.  C.  &  H.  R.  R.  R.  Co.,  216  N.  Y. 
284;  if  the  employee  is  engaged  in  new  construction  work: 
White  v.  N.  Y.  Central  &  H.  R.  R.  R.  Co.,  S.  D.  R.,  vol.  2,  p.  477, 
compensation  ruling,  as  affirmed  without  opinion,  169  App.  Div. 
903,  216  N.  Y.,  Rep.  653;  if  the  employee  is  injured  while  repair- 
ing an  empty  car  of  a  foreign  company :  Parsons  v.  Delaware  & 
Hudson  Co.,  167  App.  Div.  536;  Okrzesz  v.  Lehigh  Valley  Rail- 
road Co.,  170  App.  Div.  15;  if  the  employee  is  injured  on  a 
steamship  line  operated  by  the  railroad:  Jensen  v.  Southern 
Pacific  Co.,  215  N.  Y.  522;  if  the  railroad,  though  an  intrastate 
carrier,  occasionally  carries  interstate  baggage,  freight,  passen- 
gers, cars,  etc.;  Fairchild  v.  Pennsylvania  R.  R.  Co.,  170  App. 
Div.  135. 

A  claim  for  compensation  may  exist  concurrently  with  a 
remedy  in  admiralty:  Walker  v.  Clyde  S.  S.  Co.,  215  N.  Y. 
529;  Opinion  of  Counsel  to  Workmen's  Compensation  Commis- 
sion, S.  D.  R.,  vol.  i,  p.  413. 

§  115.  PENALTIES  FOR  FALSE  REPRESENTATION. — If  for 
the  purpose  of  obtaining  any  benefit  or  payment  under 
the  provisions  of  this  chapter,  either  for  himself  or  any 
other  person,  any  person  willfully  makes  a  false  statement 
or  representation,  he  shall  be  guilty  of  a  misdemeanor. 

§  116.  LIMITATION  OF  TIME. — No  limitation  of  time 
provided  in  this  chapter  shall  run  as  against  any  person 
who  is  mentally  incompetent  or  a  minor  dependent  so  long 
as  he  has  no  committee,  guardian  or  next  friend. 


APPENDIX  A  359 

§  117.  DUTIES  OF  COMMISSIONER  OF  LABOR. — The 
commissioner  of  labor  shall  render  to  the  commission  any 
proper  aid  and  assistance  by  the  department  of  labor  as 
in  his  judgment  does,not  interfere  with  the  proper  con- 
duct of  such  department. 

§  118.  UNCONSTITUTIONAL  PROVISIONS. — If  any  sec- 
tion or  provision  of  this  chapter  be  decided  by  the  courts 
to  be  unconstitutional  or  invalid,  the  same  shall  not  affect 
the  validity  of  the  chapter  as  a  whole  or  any  part  thereof 
other  than  the  part  so  decided  to  be  unconstitutional  or 
invalid. 

§  119.  ACTIONS  OR  CAUSES  OF  ACTION  PENDING. — This 
act  shall  not  affect  any  action  pending  or  cause  of  action 
existing  or  which  accrued  prior  to  July  first,  nineteen 
hundred  and  fourteen. 

ARTICLE  7 
LAWS  REPEALED;  WHEN  TO  TAKE  EFFECT 

Section  130.  Laws  repealed. 

131.  When  to  take  effect. 

§  130.  LAWS  REPEALED. — Article  fourteen-a  and  sec- 
tions two  hundred  and  fifteen  to  two  hundred  nineteen-g, 
both  inclusive,  of  chapter  thirty-six  of  the  laws  of  nine- 
teen hundred  and  nine,  as  amended  *by  chapter  six  hun- 
dred and  seventy-four  of  the  laws  of  nineteen  hundred 
and  ten,  are  hereby  repealed. 

§  131.  WHEN  TO  TAKE  EFFECT. — This  chapter  shall 
take  effect  immediatelyf ,  provided  that  the  application  of 

*  "As  amended"  should  read  "as  added." 

f  L.  1916,  ch.  816,  has  words  "January  first,  nineteen  hundred 
and  fourteen,"  instead  of  word  "immediately,"  which  was  in- 
serted by  L.  1914,  ch.  41,  in  effect  March  16,  1914.  The  amend- 
ments of  L.  1916,  ch.  622,  took  effect  June  i,  1916.  • 


360  COMPENSATION  INSURANCE 

this  chapter  as  between  employers  and  employees  and 
the  payment  of  compensation  for  injuries  to  employees 
or  their  dependents,  in  case  of  death,  shall  take  effect  July 
first,  nineteen  hundred  and  fourteen,  but  payments  into 
the  state  insurance  fund  may  be  made  prior  to  July  first, 
nineteen  hundred  and  fourteen. 


APPENDIX  B 

FORM    OF    WORKMEN'S    COMPENSATION    AND    EM- 
PLOYERS' LIABILITY  POLICY  CONTRACT  COV- 
ERING A  TYPICAL  MANUFACTURING  RISK 

SCOPE  AND  CONDITIONS  OF  CONTRACT 

THE  -  -  INSURANCE  COMPANY 

(HEREIN  CALLED  THE  COMPANY) 

(A  Liability  Insurance  Company  authorised  to  do  busi- 
ness in  the  state  in  which  this  Policy  applies.) 

DOES    HEREBY    AGREE    WITH    THE    EMPLOYER 

Named  and  described  as  such  fyi  the  Declarations  forming 
part  hereof,  as  respects  personal  injuries  sustained  by 
his  employees  including  death  at  any  time  resulting 
therefrom  as  follows: 

Indemnity  I.  (a)  To  PAY  to  the  person  and  in  the 
manner  provided  by  the  Workmen's  Compen- 
sation Law,  any  sum  due  or  to  become  due 
from  this  Employer  because  of  any  such  in- 
jury and  the  obligation  for  compensation  there- 
for imposed  upon  or  accepted  by  this  Em- 
ployer under  certain  Statutes  cited  and  de- 
scribed in  an  endorsement  attached  to  this 
361 


362  COMPENSATION  INSURANCE 

Policy,  each  of  which  Statutes  is  herein  re- 
ferred to  as  the  Workmen's  Compensation 
Law.  It  is  agreed  that  all  of  the  provisions 
of  each  Workmen's  Compensation  Law  cov- 
ered hereby  shall  be  and  remain  a  part  of  this 
contract,  as  fully  and  completely  as  though 
written  herein,  so  far  as  they  apply  to  compen- 
sation for  any  personal  injury  or  death  cov- 
ered by  this  Policy  while  this  Policy  shall  re- 
main in  force,  and  all  premiums  provided  by 
this  Policy,  or  by  any  endorsement  hereon  shall 
be  fully  earned  whether  any  such  Workmen's 
Compensation  Law,  or  any  part  of  any  such, 
is  now,  or  shall  hereafter  be,  declared  invalid 
or  unconstitutional.  This  obligation  for  com- 
pensation shall  include  all  provisions  of  the 
Workmen's  Compensation  Law  respecting 
funeral  expenses,  medical,  surgical,  nurse  and 
hospital  services,  medical  or  surgical  apparatus 
or  appliances  and  medicines.  Nothing  herein 
contained  shall  operate  to  so  extend  this  Policy 
as  to  include  within  its  terms  any  Workmen's 
Compensation  Law,  scheme  or  plan  not  cited 
and  described  in  an  endorsement  hereto  at- 
tached. 

(b)  To  INDEMNIFY  this  Employer  against 
loss  by  reason  of  the  liability  imposed  upon 
him  by  law  for  damages  on  account  of  such  in- 
juries. 

Service  II.   (0  To  SERVE  this  Employer  by  the  in- 

spection of  workplaces  covered  by  the  Policy 
when  and  as  deemed  desirable  by  the  Company 
and  thereupon  to  suggest  to  this  Employer  such 
changes  or  improvements  as  may  operate  to 


APPENDIX  B 


363 


Defense 


Expenses 


Persons 
Covered 


reduce  the  number  or  severity  of  injuries 
during  work,  and  (2)  upon  notice  of  such 
injuries  by  investigation  thereof  and  by  set- 
tlement of  any  resulting  claims  in  accordance 
with  the  law. 

III.  To  DEFEND  in  the  name  and  on  behalf 
of  this  Employer  any  suits  or  other  proceed- 
ings   which    may   at   any   time   be   instituted 
against  him  on  account  of  such  injuries,  in- 
cluding  suits    or    other   proceedings    alleging 
such  injuries  and  demanding  damages  or  com- 
pensation therefor  although  such  suits,  other 
proceedings,  allegations  or  demands  are  wholly 
groundless,  false  or  fraudulent. 

IV.  To  PAY  all  costs  taxed  against  this  Em- 
ployer in  any  legal  proceeding  defended  by 
the  Company,  all  interest  accruing  after  entry 
of   judgment,   and   all   expenses   incurred   by 
the  Company  for  investigation,  negotiation  or 
defense. 

V.  THIS  AGREEMENT  shall  apply  to  such  in- 
juries sustained  by  any  person  or  persons  le- 
gally employed  by  this  Employer  whose  entire 
remuneration   shall   be   included   in   the   total 
actual   remuneration    for   which   provision   is 
hereinafter   made,   upon   which   remuneration 
the  premium  for  this  Policy  is  to  be  computed 
and  adjusted  and  to  such  injuries  sustained 
by  the  President,  any  Vice-President,  Secre- 
tary or  Treasurer  of  this  Employer,  if  a  cor- 
poration, but  the  remuneration  of  any  such 
officer  may  be  excluded  unless  he  personally 
supervises  the  manual  or  mechanical  processes 
covered  hereby. 


364  COMPENSATION  INSURANCE 

Operations          VI.      THIS  AGREEMENT  shall  apply  to   Slich 

injuries  so  sustained  by  reason  of  the  business 
operations  described  in  said  Declarations,  to- 
gether with  operations  incident  thereto,  while 
conducted  either  at  the  workplaces  therein  de- 
scribed and  defined  or  elsewhere  in  connection 
therewith. 

Policy  VII.    THIS  AGREEMENT  shall  apply  only  to 

such  injuries  so  sustained  by  reason  of  acci- 
dents occurring  while  this  Policy  remains  in 
force  as  provided  and  denned  in  Item  2  of 
said  Declarations. 


THIS    AGREEMENT     IS    SUBJECT    TO    THE    FOLLOWING 
CONDITIONS  I 

Premium  A.  The  Premium  is  based  upon  the  entire 
remuneration  earned  during  any  Policy  Pe- 
riod, by  all  employees  of  this  Employer  en- 
gaged in  the  business  operations  described 
in  said  Declarations,  and  not  herein  elsewhere 
specifically  excluded,  the  amount  of  such  re- 
muneration to  be  exhibited  by  this  Employer 
to  the  Company  as  provided  in  Condition  C. 
hereof,  and  the  earned  premium  adjusted  in 
accordance  therewith  at  the  rates  hereinafter 
specified.  If  the  earned  premium  thus  com- 
puted is  greater  than  the  advance  premium 
paid,  this  Employer  shall  immediately  pay  the 
additional  amount  to  the  Company;  if  less,  the 
Company  shall  return  to  this  Employer  the 
unearned  portion,  but  in  any  event  the  Com- 
pany shall  retain  the  Minimum  Premium  stated 
in  said  Declarations. 


APPENDIX  B  365 

Cancelation  B.  This  Policy  may  be  canceled  at  any  time 
by  either  of  the  parties  upon  written  notice 
to  the  other  party  stating  when,  not  less  than 
ten  days  thereafter,  cancelation  shall  be  ef- 
fective and  the  Policy  shall  thereupon  termi- 
nate. Such  portion  of  said  Workmen's  Com- 
pensation Law,  or  any  other  statute,  or  any 
lawful  order  of  any  Board,  Commission  or 
other  designated  agency  of  the  state  in  any 
state  in  which  this  Policy  is  operative  as  shall 
require  that  similar  notice  of  cancelation  shall, 
at  the  same  time,  be  sent  by  the  party  giving  it 
to  any  Board,  Commission,  or  other  designated 
agency  of  such  state  is  hereby  made  a  part 
of  this  Policy  in  the  language  of  such  law  or 
order  as  fully  and  completely  as  if  wholly 
written  herein.  The  remuneration  of  employees 
for  the  full  Policy  Period  during  which  such 
cancelation  becomes  effective,  shall  be  com- 
puted upon  the  basis  of  the  remuneration  dur- 
ing such  period  to  date  of  cancelation.  If 
such  cancelation  is  at  the  Company's  request 
or  at  this  Employer's  request,  when  actually  re- 
tiring from  the  business  herein  described,  or 
at  the  request  of  either  to  become  effective  at 
the  end  of  any  Policy  Period,  the  earned  pre- 
mium shall  be  computed  and  adjusted  pro  rata 
as  provided  in  Condition  A.  If  such  cancela- 
tion is  at  this  Employer's  request  and  he  is  not 
retiring  from  the  business  herein  described,  and 
cancelation  is  not  to  become  effective  at  the 
end  of  a  Policy  Period,  the  earned  premium 
shall  be  computed  and  adjusted  at  short  rates, 
in  accordance  with  the  table  printed  hereon, 


366  COMPENSATION  INSURANCE 

but  "such  short  rate  premium  shall  not  be  less 
than  the  minimum  premium  stated  in  said 
Declarations.  If  at  any  time  hereafter  while 
this  Policy  is  in  force  any  Compensation  Law 
herein  described  shall  be  declared  invalid  or 
unconstitutional,  in  whole  or  in  part,  by  the 
judgment  of  any  court  of  last  resort  and  this 
Employer  shall  thereafter  notify  the  Company 
in  writing  of  his  desire  to  eliminate  from  this 
Policy  all  provisions  respecting  the  obligations 
contained  in  such  Compensation  Law,  the 
Company  upon  receipt  of  such  notice  will  ad- 
just the  premium  rates  expressed  in  this  Policy 
to  equitably  reflect  the  changed  obligation. 
Until  such  written  notice  requesting  readjust- 
ment of  premium  rate  shall  be  received  by 
the  Company,  the  premium  rates  expressed  in 
this  Policy  shall  remain  operative.  Notice  of 
cancelation  mailed  to  the  address  of  this  Em- 
ployer herein  given  shall  be  a  sufficient  notice 
and  the  check  of  the  Company,  similarly 
mailed,  a  sufficient  tender  of  any  unearned 
premium. 

Inspection  C.  The  Company  shall  be  permitted,  at  all 
reasonable  times  during  any  Policy  Period,  to 
inspect  the  plants,  works,  machinery  and  ap- 
pliances covered  by  this  Policy,  and  to  exam- 
ine this  Employer's  books  at  any  time  during 
any  Policy  Period  or  any  extension  thereof,  or 
within  one  year  after  cancellation*,  so  far  as 
they  relate  to  the  remuneration  earned  by  his 
employees  while  the  Policy  was  in  force. 
Statutory  D.  Such  part  of  said  Workmen's  Compensa- 
Obligations  tjon  Law  or  any  other  statute  of  the  state  in 


APPENDIX  B  367 

which  this  Policy  is  operative  as  provides  (a) 
that  an  injured  employee,  or  his  representa- 
tive if  death  results,  or  any  Board,  Commis- 
sion, Officer  or  other  designated  agency  of  the 
state  in  his  or  their  behalf,  shall  have  the 
right  to  enforce  a  claim  to  compensation  di- 
rectly against  the  Company,  or,  (b)  that  as 
to  any  such  employee  notice  to  or  knowledge 
on  the  part  of  this  Employer  of  the  occurrence 
of  the  injury  or  death  shall  be  notice  to  or 
knowledge  of  the  Company;  or,  (c)  that  juris- 
diction of  this  Employer  obtained  in  any  legal 
proceeding  for  the  recovery  of  compensation 
shall  be  jurisdiction  of  the  Company,  which 
shall  be  bound  by  any  order,  finding,  decision, 
award  or  judgment  therein  legally  rendered 
against  this  Employer;  or,  (d)  that  any  such 
claim  to  compensation  shall  be  an  equitable  lien 
upon  any  money  which  may  become  owing  to 
this  Employer  on  account  of  this  Policy ;  or, 
(e)  that  the  Company  shall  not  be  relieved 
from  the  payment  of  such  compensation  be- 
cause of  the  insolvency  or  bankruptcy  of  this 
Employer  or  because  of  any  default  of  this 
Employer  after  the  injury,  or;  (f)  that  under 
any  circumstances  compensation  shall  be  paid 
direct  to  any  claimant  by  the  Company  is  here- 
by made  a  part  of  this  Policy  in  the  language 
of  such  law  and  as  fully  and  completely  as  if 
wholly  written  herein  and  the  relation  between 
the  Company  and  such  injured  employee  or 
those  claiming  by,  through  or  under  him  shall 
be  as  declared  by  such  provisions  but  subject 
to  the  terms,  provisions,  limitations  and  re- 


368  COMPENSATION  INSURANCE 

quirements  of  the  Policy  not  inconsistent  there- 
with. 

Notice  E.  This  Employer  upon  the  occurrence  of  an 

accident  shall  give  immediate  written  notice 
thereof  to  the  Company  or  to  its  duly  autho- 
rized Agent  with  the  fullest  information  ob- 
tainable. He  shall  give  like  notice  with  full 
particulars  of  any  claim  made  on  account  of 
such  accident.  If,  thereafter,  any  suit  or  other 
proceeding  is  instituted  against  this  Employer, 
he  shall  immediately  forward  to  the  Company 
every  summons,  notice  or  other  process  served 
upon  him.  Nothing  contained  in  paragraph  D 
foregoing  or  elsewhere  in  this  Policy  shall  re- 
lieve this  Employer  of  ]iis  obligations  with  re- 
spect to  notice  as  herein  imposed  upon  him. 
Special  F.  If  the  method  of  serving  notice  of  can- 

Statutes  celation,  or  the  limitation  of  time  for  notice 
of  accident  or  for  any  legal  proceeding  herein 
contained  is  at  variance  with  any  specific 
statutory  provision  in  relation  thereto,  in  force 
in  any  state  in  which  this  Policy  is  operative, 
such  specific  statutory  provision  shall  super- 
sede any  such  condition  in  this  contract  incon- 
sistent therewith. 

Assignment       G.  No  assignment  of  interest  under  this  Pol- 
icy shall  bind  the  Company  unless  the  consent 
of  the  Company  shall  be  endorsed  hereon. 
Co-Insur-          H.  If  this  Employer  carries  a  policy  of  any 
ance  other  insurer  covering  concurrently   a   claim 

covered  by  this  Policy,  he  shall  not  recover 
from  the  Company  a  larger  proportion  of  any 
such  claim  than  the  sum  hereby  insured  bears 
to  the  whole  amount  of  valid  and  collectible 


APPENDIX  B  369 

concurrent  insurance.  In  any  state  where  the 
law  permits  employees  or  their  dependents  to 
make  claims  for  compensation  against  the 
.  Company  direct,  this  condition  as  to  co-insur- 
ance shall  not  apply  to  any  such  claim  so  made 
by  any  employee  or  his  dependents  covered 
hereby. 

Subrogation  I.  The  Company  shall  be  subrogated  in  case 
of  any  payment  under  this  Policy  to  the  ex- 
tent of  such  payment  to  all  rights  of  recovery 
therefor  vested  by  law  in  this  Employer 
against  persons,  corporations  or  estates. 
Should  any  employee  or  dependent  covered 
hereby,  who  is  legally  permitted  to  do  so, 
make  a  claim  for  compensation  against  the 
Company  direct,  the  Company,  upon  payment 
of  the  same  and  to  the  extent  of  such  pay- 
ment, shall  also  be  subrogated  to  all  similar 
rights  of  recovery  vested  by  law  in  such  em- 
ployee or  such  dependent. 

Changes  J.  No  condition  or  provision  of  this  Policy 

shall  be  waived  or  altered  except  by  endorse- 
ment attached  hereto  signed  by  the  President, 
a  Vice-President,  Secretary,  or  Assistant  Sec- 
retary of  the  Company ;  nor  shall  notice  to 
any  Agent,  nor  shall  knowledge  possessed  by 
any  Agent  or  by  any  other  person,  be  held  to 
affect  a  waiver  or  change  in  any  part  of  this 
contract.  Changes  in  the  written  portion  of 
the  Declarations  forming  part  hereof  (except 
Items  2  and  3)  may  be  made  by  the  Agent 
countersigning  this  Policy,  such  changes  to 
bind  the  Company  when  initialed  by  such 
Agent.  The  personal  pronoun  herein  used  to 


370  COMPENSATION  INSURANCE 

refer  to  this  Employer  shall  apply  regardless 
of  number  or  gender. 

Declara-  K.  The  statements  in  Items  numbered  one 

tions  to  thirteen  inclusive,  in  the  Declarations  here- 

inafter contained  are  true,  except  such  as  are 
declared  to  be  matters  of  estimate  only.  This 
Policy  is  issued  in  consideration  thereof,  the 
provisions  of  the  Policy  respecting  its  pre- 
miums and  the  payment  of  the  premiums  in 
such  Declarations  expressed. 

In  Witness*  Whereof,  The Insurance  Com- 
pany, has  caused  this  Policy  to  be  signed  by  its  President 
and  a  Secretary  at ,  and  counter- 
signed by  a  duly  authorised  Agent  of  the  Company. 


Secretary  Liability  Department.                   President. 
Countersigned  by 

This  space  is  intended  for  the  attachment  of  such  en- 
dorsements as  may  be  executed  as  in  the  Policy  pro- 
vided, and,  when  so  executed  and  attached  they  are  to 
be  construed  as  part  of  the  Policy. 

ENDORSEMENTS 

The  obligations  of  Section  I  (a)  of  the  Policy  to  which 
this  endorsement  is  attached  include  such  Workmen's 
Compensation  Laws  as  are  herein  cited  and  described  and 
none  other. 

Act  No.  338,  Laws  of  1915,  Commonwealth  of  Penn- 
sylvania, 

Act  No.  341,  Laws  of  1915,  Commonwealth  of  Penn- 
sylvania, 


APPENDIX  B  371 

and  any  laws  amendatory  thereof  which  may  become 
effective  while  this  Policy  is  in  force. 

The  Company  hereby  agrees  that  in  the  event  of  fail- 
ure of  the  Employer  promptly  to  pay  any  instalment  of 
compensation  insured  against,  the  Company  will  forth- 
with make  such  payment  to  the  injured  employee  or  the 
dependents  of  the  deceased  employee,  and  that  the  obliga- 
tions shall  not  ue  affected  by  any  default  of  the  Em- 
ployer after  the  accident  in  the  payment  of  premiums 
or  in  the  giving  of  any  notice  required  by  this  Policy 
or  otherwise.  The  foregoing  agreement  shall  be  con- 
strued to  be  a  direct  promise  to  such  injured  employee 
and  to  such  dependents  enforceable  by  action  brought  in 
<the  name  of  such  injured  employee  or  in  the  name  of 
such  dependents. 

If  any  property  of  the  Employer  is  subjected  to  a  lien 
as  provided  in  Section  429  of  the  Workmen's  Compensa- 
tion Act  which  lien  is  based  upon  any  unpaid  portion 
of  any  compensation  obligation  undertaken  by  this 
Policy,  and  if  the  Employer  desires  to  convey  or 
encumber  such  property  or  any  part  thereof,  the 
Company  agrees,  that  by  such  means  as  the  law  pro- 
vides, it  will  cause  said  lien  to  be  removed  from  such 
part  of  the  property  encumbered  thereby  as  the  Em- 
ployer may  at  that  time  desire  to  convey  or  encumber 
unless  said  lien  shall  have  been  removed  by  other  lawful 
means. 

If  there  shall  be  any  change  in  the  basis  rates  applicable 
to  the  trade,  business  or  occupation  of  the  Employer  dur- 
ing the  term  in  which  this  Policy  is  in  effect,  such  change 
of  rate  shall  be  applied  in  the  adjustment  of  the  final  pre- 
mium from  the  date  of  the  approval  of  such  change  of 
rate  by  the  Insurance  Department  until  the  expiration  of 
this  Policy. 


372  COMPENSATION  INSURANCE 

To  be  attached  to  and   form  a  part  of   Policy  No. 

issued  to  John  Doe. 

by 
THE INSURANCE  COMPANY, 


President. 

It  is  understood  and  agreed  that  the  remuneration  of 
employees  who  have  rejected  the  Pennsylvania  Work- 
men's Compensation  Law  shall  be  reported  separately 
from  the  remuneration  of  employees  who  have  accepted 
this  Law,  and  a  premium  paid  on  the  same  at  the  rate 
or  rates  appearing  in  the  declaration  of  the  Policy. 

Nothing  herein  contained  shall  vary,  alter  or  extend 
any  provision  or  condition  of  the  Policy,  other  than  as 
above  stated. 

To  be  attached  to  and   form  a  part  of   Policy  No. 

issued  to  John  Doe. 

by 

THE INSURANCE  COMPANY, 


President. 

If  there  shall  be  any  change  in  or  extension  of  the 
Employer's  business  or  if  the  Employer  shall  make  any 
structural  additions,  extraordinary  repairs  or  alterations 
to  his  plant  as  above  described,  this  Policy  shall  cover 
all  such  operations,  trade,  business  or  occupation  as  fully 
as  if  the  same  had  been  set  forth  in  the  Declarations 
which  form  a  part  of  this  Policy  and  the  Employer  shall 
pay  therefor  a  premium  based  upon  the  Company's  rates 
filed  with  and  approved  by  the  Insurance  Department  of 
the  Commonwealth  of  Pennsylvania  and  respectively  ap- 
plicable to  such  operations,  trade,  business  or  occupation. 

The  Employees  of  a  Contractor  or  Subcontractor  while 


APPENDIX  B  373 

such  Employees  are  engaged  on  or  in  connection  with 
the  business  operations  described  in  the  Declarations  shall 
be  deemed  to  be  Employees  of  the  Employer,  unless  such 
Contractor  or  Subcontractor  shall  furnish  satisfactory 
certificates  of  concurrent  valid  and  collectible  Workmen's 
Compensation  Insurance,  or  unless  the  Employer  shall 
have  exempted  himself  from  liability  to  the  Employees 
of  such  Contractor  or  Subcontractor  in  the  manner  pro- 
vided by  the  Compensation  Law. 

To  be  attached  to  and   form  a  part  of   Policy  No. 
issued  to  John  Doe. 

by 

THE INSURANCE  COMPANY, 


President. 


PREMIUM    RATE   ADJUSTMENT 


The  premium  rates  expressed  in  the  Policy  to  which 
this  endorsement  is  attached  are  the  basis  rates  approved 
by  the  Pennsylvania  Insurance  Department  and  are  sub- 
ject to  such  subsequent  adjustment  as  of  the  date  upon 
which  the  first  Policy  Period  becomes  effective  as  shall 
be  determined  by  such  differential  rate  computation  as 
may  hereafter  be  authorized  by  said  Department  during 
such  Period.  When  a  differential  rate  computation  has 
been  so  authorized,  this  endorsement  shall  be  replaced 
by  a  new  endorsement  applying  such  computation  to  this 
risk  if  subject  thereto  as  of  the  effective  date  above 
stated,  and  any  reduction  from  the  basis  rates  on  ac- 
count of  the  application  of  any  system  of  schedule  or 
merit  rating  shall  be  clearly  set  forth  in  such  new  en- 
dorsement upon  the  issuance  of  which  this  endorsement 
shall  be  void  and  of  no  effect. 
25 


374  COMPENSATION  INSURANCE 

To  be  attached  to  and   form  a  part   of   Policy  No. 

issued  to  John  Doe. 

by 

THE INSURANCE  COMPANY, 


President. 


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379 


SHORT  RATE  TABLE 


Short  Rate  Cancelation  Table 

FOR  TERM  OF  ONE  YEAR 

lc 
2c 
3 
4 
r5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
25 
30 
35 
40 
45 

ay 

Per  cent, 
of  Annual 
Premium 

.      .      .      .       2 

50  days 
55     " 
60     « 
65     « 
70     " 
75     « 
80     « 
85     " 
90     « 
105     " 
120     " 
135     " 
150     " 
165     " 
180     " 
195     « 
210     " 
225     " 
240     " 
255     " 
270     " 
285     " 
300     " 
315     " 
330     " 
360     « 

Per  c 

of  Ar 
Prei 

ent. 
inual 
nium 

28 
29 
30 
33 
36 
37 
38 
39 
40 
45 
50 
55 
60 
65 
70 
73 
75 
78 
80 
83 
85 
88 
90 
93 
95 
100 

ays  . 

« 

« 

4 
5 
6 

« 

7 

u 
u 

8 
9 

u 

9 

u 

10 

or  three  months  . 
or  four  months    . 
or  five  months     . 
or  six  months 
or  seven  months  . 
or  eight  months  . 
or  nine  months. 

u 

.....     10 

u 

11 

u 

.      .      .      .     12 

u 

.     13 

u 

13 

u 

.      .      .      .     14 

u 

14 

u 

15 

u 

16 

u 

.      .      .      .      ,     16 

u 

17 

« 

19 

u 

.      .      .     20 

u 

23 

or  ten  months 

u 

.  "  .      .      .      .26 

u 

.      .     27 

or  eleven  months 
or  twelve  months 

38o 


INDEX 


26 


INDEX 


Accident  frequency,  222,  230      Accident   prevention,   saving 


reduction  in,  27-31 

diagram  of,  28 
Accident    prevention,    13-26, 

139 

agencies  of,  14-17 

American       Museum       of 
Safety,  16,  17 

benefits  of,  27 

devices,  20-23 

Illinois  Steel  Co.,  24-26 

insurance  companies,   16 

Massachusetts,     result     of 
campaign,  32-33 

methods  of,  17-26 

National    Safety    Council, 
16,  17 

New  Jersey,  15 

organization  of,  22-26 
Illinois    Steel    Co.,    dia- 
gram of,  25 

railroads,  14 

reduction  in  accident  fre- 
quency, 27-31 

reduction  in  loss   of  time 
and    wages   from,  31- 

33 

relative  efficiency  of  meth- 
ods, 25-26 

results  of,  27-38 


net,  U.  S.  Steel  corpo- 
ration,    diagram     of, 

35 

saving  from,  33-36 

saving   from,   U.   S.    Steel 
Corporation,  34-35 

U.  S.  Steel  Corporation,  15 
Accidents,  industrial,  3-38 

classification  of,  116-118 

conclusion,  36-37 

definition  of,  3 

extent  of,  3-5 

loss  from,  6 

loss  of  time,  6,  8 

loss  to  employer,  8 

loss  to  society,  9 

Massachusetts,  5 

mining,  3 

prevention  of.     See  Acci- 
dent prevention 

problem  of,  12 

attempts  to  solve,  65-66 

problem    of    compensating 
for  loss  from,  68 

responsibility  for,  9-11 

results  of,  5-9 

statistics,  11-12 

steam  railways,  4 

by  wage  groups,  7 


383 


384 


INDEX 


Administration,  commission 
plan,  advantages  of, 

136,  137 

disadvantages  of,  137 
Administration      of      work- 
men's     compensation, 

132-137 

Assignments,  138-139 
Associated    Companies,   285- 

286 
Assumption  of  risk,  doctrine 

of,  45-46 
modification     of     doctrine 

of,  49,  50 

Average,  law  of,  168 
"Average     weekly     wages," 

definition  of,  130 

Bailey  on  Personal  Injuries, 

S2,  55 

Basic  pure  premium,  227 
Beneficiaries    of    compensa- 
tion, 112-114 
Benefits,  limitations  of,  119- 

121 

Beyer,  D.  S.,  37,  260-261,  263 
Bohlen,  Francis  H.,  55 
Brooks,  John  Graham,  94 
Burdick,    F.    H.,    43-44,    55> 

56 

Bureau  of  Labor  Statistics, 
Workmen's  Compen- 
sation and  Insurance 
Series,  94 

California,  Workmen's  Com- 
pensation Act,  112-113 


California,  permanent  dis- 
ability benefits,  122-123 

Catastrophe,  definition  of, 
280-281 

Catastrophe  hazard,  insur- 
ance of,  280-286 

Catastrophe  reserves,  190, 
282-283 

Catastrophes,  221,  232 

Cities,  growth  of,  73 

Commission  plan,  advantages 

of,  136,  137 
disadvantages  of,  137 

Commissions,  administrative, 

132-137 
duties  of,  134-136 

Common    employment,    doc- 
trine of,  46-48 
abrogation  of  doctrine  of, 

SJ-S2 
modification     of     doctrine 

of,  50-52 

Commons  and  Andrews,  132, 
140 

Commutation  of  payments, 
126-127 

Compensation,  computation 
of,  129-131 

Compulsory  Insurance  in 
Germany,  94 

Compulsory  workmen's  com- 
pensation laws,  1 06 

Computation  of  compensa- 
tion, 129-131 

Constitutionality,  elective 
workmen's  compensa- 
tion laws,  155-157 


INDEX 


385 


Constitutionality,  compulsory 
workmen's    compensa- 
tion laws,  143-155 
workmen's      compensation 

laws,  142-157 

U.  S.   Supreme  Court  de- 
cisions, 151-157 

Contracting  out,  49,  50 

Contractors,  139 

Contributory  negligence,  doc- 
trine of,  48 

Corporations,     compensation 
schemes  of,  95-96 

Cost,  burden  of,  137-138 

Dawson,  M.  M.,  278 
Dawson,  W.  H.,  87,  93 
Death  benefits,  123-126,  128 
DeLeon,  E.  W.,  207 
Dicey,  A.  V.,  53-54,  56 
Disability,  duration  of,  6 
Downey,  E.  H.,  198,  239,  264 

Eastman,  Crystal,  59,  65,  67 
Election     of     compensation, 

104-108 

Elective  workmen's  compen- 
sation laws,  104-108 
Elliott     on     Insurance,     199, 

207 

Employers'  liability,  assump- 
tion of  risk,  45-46 
burden  of  proof,  48-49 
common    employment,    46- 

48 

contracting  out,  49 
contributory  negligence,  48 


Employers'  liability,  criticism 

of,  57-67 

death  limitation,  49 
defects  of,  65 
duties  of  employer,  43-45 
employee's  criticism,  59-63 
employer's  criticism,  63-64 
fellow  servant  rule,  46-48 
Germany,  82-84 
Great  Britain,  88-90 
historical  development.  52- 

55 

law  of,  42-55 

Michigan,  60 

modifications    of    common 
law,  49-52 

New  York,  59-62 

Pennsylvania,  59-60 

personal  fault  concept,  57 

proof  of,  45 

results  of,  57-67 

society's  criticism,  64-65 

superior  servant  rule,  51 

vice-principal   rule,   50-51 
Employers'      Liability     Act, 
Alabama,  53 

Federal  Statute,  53,  55 

Great  Britain,  52,  88,  89 

Massachusetts,  53,  55 
Employers'  liability  contract, 
201-205 

cancellation,  203 

inspection,  203 

miscellaneous,  204-205 

notices,  203-204 

obligation    assumed,    201- 
202 


386 


INDEX 


Employers'  liability  contract, 
premium  computation, 
202-203 

warranties,  204 
Employers'     liability     insur- 
ance, limits  in,  282 
premium  rates,  208-209 
reserves,  265-279 
Employers'      liability     rates, 

208-209 

Employments      covered      by 
workmen's    compensa- 
tion laws,  108-110 
Exemptions,  138-139 
Expense    loading,    222,    232- 

234 

Experience  rating,  253-264 
arguments  against,  262 
arguments  for,  262 
definition  of,  252 
Massachusetts  plan,  260 
Ohio  plan,  260 
National  Workmen's  Com- 
pensation Service  Bu- 
reau plan,  260 
New  York  plan,  255-259 
application  of,  259 
calculation  of  loss  ratio, 

255-257 

computation     of     actual 
debits  and  credits,  258- 

259 
maximum      debits      and 

credits,  257-258 
neutral  zone,  257 
schedule  rated  risks,  259 
proposed  plans,  260-261 


Experience  rating,  New 
York  plan,  prospective, 
252 

purpose  of,  252-253 
requirements    for    scien- 
tific plan,  254-255 
retrospective,  252 
Extraterritorial        accidents, 
139-140 

Farwell   v.   Boston   &  Wor- 
cester   Railroad    Cor- 
poration, 45-46,   47-48 
Fellow-servant  rule,  46-48 
abrogation  of,  51-52 
modification  of,  50-52 
First  Conference  on  Sched- 
ule Rating,  242 
Fisher,  Arne,  239 
Fisher,  W.  C,  140 
Flynn,  B.  D.,  279 
Fondiller,  Richard,  279 
Forbes,  Charles  S.,  263 
Frankel  and  Dawson,  82-83, 
93 

Gaty,  T.  E.,  263 
Germany,    employers'    liabil- 
ity, 82-84 
workmen's     compensation, 

84-87 

Great  Britain,  employers'  lia- 
bility, 88-90 
workmen's     compensation, 

90-93 
Greene,  W.  W\,  263 


INDEX 


387 


Hansen,  C.  M.,  263 
Hoffman,  Frederick  L.,  3,  37 
Howkins     v.      Bleakly     and 

Garst,   156-157 
Huebner,  S.  S.,  168,  172 

Illinois,  rate  sheet  for,  214 

Imperial  Insurance  Ordi- 
nance, 82 

Increasing  tost  of  the  act, 
220,  232 

Industrial  accident  insur- 
ance, 65,  66 

Industrial  accidents.  Sec 
Accidents,  industrial 

Industrial  Compensation 

Rating  Schedule,  242 

Industrial  diseases,  26,  m- 
112,  232 

Industrial  relations,  changes 
in,  69-72 

Injuries  covered  by  work- 
men's compensation 
laws,  110-112 

Insurance  of  the  catastrophe 
hazard,  280-286 

Insurance,  employers'  liabil- 
ity.     See    Employers' 
liability  insurance 
mutual,  184-187 
policy  contract,  199-207 
premium,   169-170 
state  funds,  188-193 

arguments  against,   192- 

193 

arguments  for,  191-192 
workmen's  collective,  96 


Insurance,  workmen's  com- 
pensation. See  Work- 
men's compensation 
insurance 

Insurance  requirements,  174- 

177 
map  of,   176 

Insurance,  theory  of,  161-172 

Inter-insurance      exchanges, 

175 

Ives  v.  South  Buffalo  Rail- 
road Co.,  143-147 

Jeffrey   Mfg.    Co.   v.   Blagg, 

156 

Jensen  v.  Southern  Pacific 
Co.,  151 

Kentucky,  Workmen's  Com- 
pensation Act  of  1914, 
joo 

Laissez  faire,  57 
Law  of  average,  168 
Law  differentials,  231 
Law,  Frank  E.,  273,  274-275, 

278 
Limitations  of  benefits,  119- 

121,  128 

Limits   in   employers'   liabil- 
ity insurance,  282 
Loss  reserves,  267-279 

chart  of  requirements,  276 
desiderata,  268-269 
difficulties    of    calculating, 

269-270 

law,  defects  of,  275 
law  governing,  272-275 


388 


INDEX 


Loss    reserves,    methods    of 

calculation,  270-272 
proposed  law,  275-278 
purpose  of,  267,  268 

Machine-employee  ratio,  246- 

248 
Machinery,      change      from 

handicraft  to,  72-73 
Maddrill,  J.  P.,  232,  239 
Magoun,  W.  N.,  239 
Manual  premium  rates,  208- 

239 

Manual,  use  of,  211-212 
Manual  of  Workmen's  Com- 
•pensation       Insurance 
Rates,       page       from, 
213 
Manual    rate,    definition    of, 

211 
Manual  rates,  208-239 

accident     frequency,     222, 

230 

basic  pure  premiums,  227 
catastrophe     hazard,     221, 

232 
component   parts   of,   212- 

215 

criticism,  236-37 
expense  factor,  222 
factors  to  be  considered  in 

computing,  215-221 
future,  the,  237-238 
increasing  cost  of  the  act, 

220,  232 
law    differential,    227-230, 

231 


Manual  rates,  loss  cost,  fac- 
tors causing  variation 
between  states,  221- 
222 

loss  cost,  factors  to  be  con- 
sidered in  computing, 
215-221 

merit  rating,  effect  of,  220- 
221 

method  of  calculating,  226- 

238 

profit  factor,  222 

pure  premium,  216-218, 
227 

typical  rate  calculation, 
235-236 

underestimate  of  outstand- 
ing losses,  218-220 
Maryland,  Workmen's  Com- 
pensation Act  of  1902, 
96-98 

Workmen's  Compensation 
Act  of  1910,  99 

Workmen's  Compensation 
Act  of  1912,  100 

Workmen's    Compensation 

Act  of  1914,  100 
Massachusetts  Industrial  Ac- 
cident Board,  32 
Massachusetts,      Workmen's 
Compensation   Act   of 
1908,  98-99 

Workmen's  Compensation 
Act,  130 

experience  rating  plan,  260 
Medical    and    surgical     aid, 
126,  129 


INDEX 


389 


Merit  rate,  definition  of,  240 
Merit  rating,  240-264 

bases  for,  241 

conclusion,  262-263 

effect  of,  220-221 
Montana,    Workmen's    Com- 
pensation Act  of  1909, 

99 

Morale,  253 
Moral  hazard,  253 
Mountain     Timber     Co.     v. 

State  of  Washington, 

153-155 

Mowbray,  A.  H.,  239,  263 
Mudgett,  Bruce  D.,  164-168, 

172 
Murray    v.    South    Carolina 

Railroad  Co.,  46-47 
Mutual    Corporations    Rein- 
surance Fund,  285 
Mutual,    especially    created, 

177 

mixed,  175 
pure,  175 

Mutual  insurance,  184-187 
arguments  against,  187 
arguments  for,  186 
characteristics  of,  184-185 
history   and   present   posi- 
tion, 185-186 


National  Insurance  Act,  82 
National    Workmen's    Com- 
pensation Service  Bu- 
reau,   experience    rat- 
ing plan,  260 


Negligence,  definition  of,  41- 

42 

law  of,  41-42 
law  of,   as  applied  to  the 
relation  of  master  and 
servant,  41-56 
Neutral  zone,  257 
New    York    Central    Co.    v. 

White,    151-153 
New  York,  Workmen's  Com- 
pensation Act  of  1910, 
100 
experience     rating     plan, 

255-259 
application  of,  259. 

Occupational  diseases,  26, 
III-H2,  232 

Ohio,  experience  rating  plan, 
260 

Olifiers,  Edward,  239 

Oregon,  schedule  of  compen- 
sation, 119 

Outstanding  losses,  underes- 
timate of,  218-220 

Partial     disability     benefits, 

I2O-I2I 

Partial  disability,  permanent, 

I2O-I2I 

temporary,  120 
Pennsylvania,        Workmen's 
Compensation         Act, 
121,  122,  124-125 
proposed  experience  rating 

plan,  261 

Permanent  partial  disability, 
120,  121 


390 


INDEX 


Permanent    total     disability, 

119-120 

Policy  contract,  199-207 
a    contract    of    indemnity, 

199-200 

-  employers'  liability.  Sec 
Employers'  liability 
contract 

general  principles,  199-201 
a   personal    contract,   200- 

201 

rules  of  construction,  201 
workmen's     compensation. 
Sec   Workmen's   com- 
.  pensation  contract 
Preferred  claim  to  compen- 
sation, 138 
Premium    rates,    employer's 

liability,  208-209 
history  of,  209,  210 
importance  of,  210 
kinds  of,  211 
problem  of,  223-224 
task  of  rate-making,  210- 

211 
workmen's     compensation, 

208-239 

See  also  Manual  rates 
Price,  C  W.,  32,  38 
Priestly  v.  Fowler,  42,  46 
Probability,   theory  of,    162- 

168 
accuracy    of    theory,    163- 

168 

application  of  theory  to 
the  insurance  of  em- 
ployers' liability  and 


workmen's  compensa- 
tion, 168-171 

Probability,  theory  of,  prac- 
tical qualifications,  171 

Proceedings  of  the  Joint 
Conference  on  Work- 
wen's  Compensation 
Rates,  233-235 

Pure  premium,  216-218,  227 

Rate-making,   machinery   of, 

224-226 

task  of,  210,  211 
Rate  sheet,  specimen,  214 
Rates,  workmen's  compensa- 
tion    insurance.      See 
Manual  rates  and  Pre- 
mium rates 
Rating,  formula,  249 
Reinsurance,  283-286 
Lloyds,  284 

Mutual  Corporations  Rein- 
surance Fund,  285 
workmen's     compensation, 

284-286 

Workmen's    Compensation 
Reinsurance     Bureau, 

285 

Relief  Associations,  65,  66 
Reserve,  definition  of,  267 
Reserves,  265-279 

catastrophe,  190,  282-283 
loss.    See  Loss  reserves 
unearned     premium,     265- 

267 

Respondeat  superior,  doc- 
trine of,  42,  48,  53 


INDEX 


391 


Rhodes,  J.  E.  2d,  141,  207 
Richards  on  Insurance,  199- 

200,  207 
Rubinow,  I.  M.,  67,  102,  198, 

217-218,  228,  238,  279 
Ryan,  H.  E.,  198,  263 

Standard  Distribution  of  Ac- 
cidents Table,  229 

Standards  for  Workmen's 
Compensation  Laws, 
109 

State  ex  rel.  Davis-Smith 
Co.  v.  Qausen,  State 
Auditor,  147-150 

State    funds,    175,    177,    188- 

193 
arguments     against,     192- 

193 

arguments  for,  191-192 
catastrophe  reserve,  190 
characteristics  of,  188-190 
dates  of  establishment,  191 
expenses,  189,  190 
history  and  extent  of  busi- 
ness,   190-191 
Stock  companies,  179-184 
arguments    against    insur- 
ance in,  183-184 
arguments    for    insurance 

in,  181-183 

characteristics  of,  179-180 
dates  of  organization,  182- 

183 

history   and   present   posi- 
tion of,  180,  181 
Sub-contractors,  139 


Superior  servant  rule,  51 
Surgical  aid,  126 
Scattergood,  C.   E.,  216-217, 

239 
Schedule    of    Compensation, 

116-131 

criticism  of,  127-129 
Schedule  rating,  241-252 
application    of   the    sched- 
ule, 249-252 
conclusion,  252 
definition  of,  241 
education,  248-249 
eye  protectors,  etc.,  249 
formula  rating,  249 
hazard,  types  of,  243-246 
inspection,  248-249 
machine-employee       ratio, 

246-248 

maintenance     and     inspec- 
tion, 249 
rating  sheet,  251 
safety    organization,    248- 

249 

sample  page,  244 
schedule,  the,  242 
scope  of,  242-243 
Schedule  for  Rating  Perma- 
nent Disabilities,  123 
Seager,  H.  R.,  78 
Self-insurance,   173-174 
Senior,  L.  S.,  264 
Shaw,  Chief  Justice,  54 
Shearman   and  Redfield,   42, 

55 
Smith  v.  Erie  Railway  Co., 

44 


392 


INDEX 


Social  ideas,  new,  73-75 
Specific  injury  schedules,  129 
Specific     permanent     injury 
schedules,  121-122 

Temporary  partial  disability, 

1 20 
Temporary    total    disability, 

118-119 

Titus  v.  Bradford,  etc.,  Rail- 
way, 44 

Total  disability,  118-120 
permanent,  119-120 
temporary,  118-119 

Underestimate  of  outstand- 
ing losses,  218-220 

Unearned   premium   reserve, 

265-267 
method  of  calculating,  266- 

267 

United  States  Supreme 
Court,  decisions  on 
constitutionality  of 
workmen's  compensa- 
tion laws,  151-157 

United  States,  historical  de- 
velopment    of    work- 
men's     compensation, 
94-102 
Workmen's    Compensation 

Act  of  1908,  99 
workmen's      compensation 
legislation  in,  103-141 

Vice-principal  rule,  50-51 


Waiting  period,  114-115 
Washington,      schedule      of 

compensation,  119 
Whitney,  A.  W.,  263 
Willett,  A.  H.,  172 
William  I   of  Germany,  85- 

86 

Wilson,  H.  M.,  264 
Woodward,  Joseph  H.,  254, 
260,  263,  267-268,  279 
Workmen's  collective  insur- 
ance, 96 

Workmen's        compensation, 
administrative       com- 
missions, 132-134 
assignments,  138-139 
basis  of,  76-78 
beneficiaries  of,  112-114 
benefits,  116-131 
burden  of  cost,  137-138 
California  act,  112-113 
Workmen's         compensation 
commission,  duties  of, 

134-136 

Workmen's        compensation, 
commutation    of    pay- 
ments, 126-127 
Workmen's         compensation 

contract,  205-207 
approval  of,  206-207 
cancellation,  206 
notices,  206 
obligation     assumed,     the, 

205-206 

premium  adjustments,  206 
Workmen's        compensation, 
definition  of,  76 


INDEX 


393 


Workmen's        compensation, 
election  of,  104-108 
exemptions,  I38--I39 
federal  act  of  1908,  99 
foreign  countries,   histori- 
cal    development     in, 

79-93 

Germany,  84-87 
early  laws,  82,  83 
-law  of  1884,  86-87 
present  law,  87 
Great  Britain,  90-93 
law  of  1897,  90,  92 
law  of  1906,  92-93 
Workmen's  compensation  in- 
surance, 173-198 
conclusions    from    experi- 
ence,  195-197 
contract.     See  Workman's 
compensation  contract 
expense  factor,  222 
future,  the,  197 
Workmen's  compensation  in- 
surance  manual,   211- 
212 

Workmen's  compensation  in- 
surance,   manual    pre- 
mium rates,  208-239 
methods  of,  173-198 

conclusion,    193-197 
methods     permitted,     177- 

179 

rates.     See  Manual  rates 
reinsurance,  284-286 
reserves,  265-279 
types  of  organization,  174- 
175 


Workmen's        compensation 
laws,     administration, 

132-137 

compulsory,  106 

compulsory,  constitutional- 
ity of,  143-155 

constitutionality    of,    142- 

157 

death  benefits,  123-126,  128 
defects  of,  104 
elective,  104-108 
elective,      constitutionality 

of,  155-157 
employments  covered,  108- 

IIO 

extraterritorial  accidents, 
139-140 

foreign,  dates  of  enact- 
ment of,  80-81 

injuries  covered,  110-112 

insurance,  methods  permit- 
ted, 177,  179 

insurance        requirements, 

175-177 

limitations  of  benefits,  128 
map  showing  elective  and 

compulsory  laws,   107 
medical    and   surgical   aid, 

126,  129 
miscellaneous      provisions, 

137-140 
schedule  of  compensation, 

116-131 
schedule  of  compensation, 

criticism  of,  127-129 
specific  injury,  129 
surgical  aid,  126 


394 


INDEX 


W  o  r  k  m  e  n's  compensation 
laws,  disability  bene- 
fits, 118-120 

waiting  period,  114-115 
years  of  enactment,  101 
Workmen's        compensation 
legislation       in       the 
United  States  and  ter- 
ritories, 103-141 
Workmen's        compensation, 

literature  of,  94-95 
occupational  diseases,  m- 

112 


Workmen's        compensation, 

permanent     disability, 

122,  123 
Workmen's    compensation    a 

preferred  claim,  138 
Workmen's  Compensation  Re- 
I  insurance  Bureau,  285 

Workmen's       compensation, 

theory  of,  68-78 
United     States,    historical 

development,  94-102 

Young,  Robert  J,,  24-26 


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